Fed's inflation forecast, market volatility: Top Takeaways

US stock market indexes (^DJI, ^IXIC, ^GSPC) are taken aback by Federal Reserve Chair Jerome Powell's statements outlining that it's taking a lot longer than expected to reach the Fed's 2% inflation target. In turn, Treasury yields (^TYX, ^TNX, ^FVX) are flourishing in this higher-for-longer interest rate environment.

Yahoo Finance Reporter Alexandra Canal joins Market Domination Overtime to go over the most influential market trends steering stocks, including market volatility levels (^VIX).

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Luke Carberry Mogan.

Video transcript

- Well as stocks closed the day mixed, our Alexandra Canal is here with the takeaways from the trading day. And of course, you were paying attention to Chair Powell's comments as well. And obviously, we saw that percolating through the market.

ALEXANDRA CANAL: Yeah, markets really continuing to come to terms with this higher for longer interest rate mantra from the Federal Reserve, which Fed Chair Jerome Powell pretty much all but confirmed during his fireside chat earlier today. We did see quite a bit of volatility in equities throughout the day. Although the Dow was able to cling to those gains, despite a more hawkish tone from Jerome Powell.

But it was really in those treasuries that we saw the biggest moves. The two-year note briefly touching about 5%, its highest level since November. If you take a look at the 10-year Treasury, that is inching closer to 4.7%, which is the next technical level to watch here. And for me and others who have been following Powell and his rhetoric for a bit, it was interesting to see this pivot in his language. How much more clear he was when it comes to the path forward for interest rates, and how we are in this higher for longer narrative probably throughout the rest of the year.

He said, quote, "The recent data have clearly not given us greater confidence, and instead indicate that it's likely to take longer than expected to achieve that confidence." So these comments really pushing investors to reassess their risk appetite, given this highly restrictive environment that we're likely to stay in. That's why you saw some of the homebuilder stocks, those more interest rate sensitive in their areas of the market struggle today as well.

- Yeah, I mean even so, it wasn't a huge move given--

ALEXANDRA CANAL: Right.

- That he was acknowledging what the market has already coming to terms with. Um everybody keeps telling me to watch the VIX. You're telling me, Josh Schaffer's telling me. Tell me, why should we be watching the VIX?

ALEXANDRA CANAL: I've been noticing some interesting moves with the VIX lately, especially after yesterday. The VIX, otherwise known as Wall Street's fear gauge, it's hitting levels that we haven't seen for quite some time. For example, yesterday we saw the VIX close up above 19 for the first time since Halloween. We are continuing to hover at those levels. We did throughout today, although it did close down closer to 18, but 20 is the level to watch here. That's the next technical level that Wall Street analysts have been talking about.

And Citi said the move points to more localized signs of stress in the market as rising yields continue to pressure those stocks, while investors are also digesting escalating tensions in the Middle East and what those rising geopolitical risks could mean to markets. And even market bull Tom Lee from Fundstrat. He said the surging VIX means investors don't believe that the worst is yet to come, and that you need to be a little more cautious when buying any type of dip. So just something to keep in mind and to watch there, as we're seeing these levels oscillate and get closer to that 20.

- All right, Alex Canal, thank you. Appreciate it.