Fed Chair Jerome Powell continues testimony before Congress

Yahoo Finance Live anchors discuss how stocks are trading as Fed Chair Powell continues to testify before Congress.

Video transcript

BRIAN CHEUNG: Federal Reserve Chairman Jerome Powell back on Capitol Hill for day two of congressional testimony facing the House Financial Services Committee. And we've been hearing a lot about what the Fed chairman has been saying with regards to obviously inflation and how the Fed will respond to what is inflation at paces we have not seen since the early 1980s. Yahoo Finance's Emily McCormick is here to chat about the highlights. And Emily, that hearing is still ongoing right now. But a big word that caught a lot of attention so far is unconditional is how he described the Fed's approach to wanting to get inflation down.

EMILY MCCORMICK: That's right. Brian, and I think a lot of what we're hearing from Powell at least in the early goings of this hearing is similar to what we heard yesterday when he was speaking before the Senate Banking Committee, in that Fed Chair Powell was really trying to drive home this notion that he does-- it remains the top priority to bring down inflation currently at 8.6%, if you look at that CPI print that we just got for the most recent month. And really talking about how imperative it is to really get these price increases under control here.

Now of course he is trying to thread the needle as he mentioned yesterday before the Senate Banking Committee. He said that it is not the goal of the Fed to induce a recession in trying to bring these prices under control. But at the same time is trying to take a really tough stance here with his rhetoric. And really emphasizing to Congress and to the American public that getting inflation remains the main target right now for the Fed.

BRIAN CHEUNG: Yeah, and it's a really tough tightrope to walk because for the Fed at least right now. The options are either you allow inflation to go unkempt, and then you end up going into recession. Or the Fed has to hike rates to abruptly to get ahead of inflation and then you go into a Fed induced recession anyway. So I think that's a big reason why you're seeing a lot of consternation.

You look at the bond market. We already saw the bond market show signs of inversion, which is usually preceded a recession historically. But interesting movement yesterday. I mean the 10 year yield down double digit in terms of basis points. You don't see movements like that. Although Jared Blikre and others have pointed out that some of that might be pinned to commodities movements as well.

EMILY MCCORMICK: That's right, Brian. And we did see that yesterday WTI crude oil futures did settle up there about one month low here just above $106 per barrel you could see still holding now actually below that level in intraday trading today. So when we see oil prices moving down of course, this is largely in response to concerns that we are going to see demand destruction because of these recessionary concerns. If you look inside of the S&P 500, yes, the broader index is up today. It had been up for some of yesterday than ended slightly lower.

But you're seeing this defensive positioning in terms of the S&P 500 sector action. You're seeing things like health care, consumer staples, outperforming on an intraday basis. The cyclicals like energy, industrials, are underperforming. So it really speaks to the fact that investors are getting more defensive, perhaps positioning for that potential for a downturn when it comes to just all the indicators that they're looking at, when they're listening to what these Fed speakers have to say.

BRIAN CHEUNG: Well, defensive is kind of a tough situation right now. Because we've had people come on the show in the last few days and say there's nowhere to hide right now, right? I mean, people aren't even going in fixed income because the rising rate is causing a lot of repricing. And even when you look at just kind of whether or not the growth stocks are now looking cheap enough to buy, well now you have some people out there on the street apparently calling Facebook and other big tech names value stocks now. What's going on?

EMILY MCCORMICK: Exactly. So if we take a look here, we do have some news coming out from the FTSE Russell. They're actually due to rebalance the stock benchmarks at the close of trading this week. We're going to see Meta Platforms, the parent company of Facebook, as well as Netflix and PayPal holdings jump into the Russell 1,000 value index.

Now when you think about a value stock, you don't necessarily think about these tech, historically tech and growth names. But at the same time, you think about the year to date performance of many of these stocks. Take a look at Meta Platforms. Take a look at PayPal and Netflix, all down by double digit percentages. I mean Netflix still down by nearly 70%, by 70% for the year to date through intraday trading.

Really speaks to the fact here that we're seeing these price to book ratios come down. That's really one of the big ratios that we look for that Russell 1,000 on that value index. But at the same time, I think there has been some skepticism if you see what analysts have been saying about this move here. It's the question of, can you really call these tech stocks value names in a traditional sense. But at the same time this move by the FTSE Russell is perhaps saying, maybe we aren't-- investors shouldn't be expecting the kinds of growth rates that we saw over the course of the pandemic for a name like Netflix, for a name like Zoom, that saw all this increase in business activity when people were still working from home.