Should you turn bullish on stocks after Fed Chair Powell’s remarks?

S&P 500 ended in the green today even after Fed Chair Jerome Powell reiterated that the central bank may have to raise rates more than expected.

Fed to remain data dependent

Nonfarm payrolls were up significantly more than expected in January (find out more). On Tuesday, therefore, Chair Powell said that the Federal Reserve will continue to be hawkish if the economic data remains hot.  

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The reality is, we’re going to react to the data. So, if we continue to get, for example, strong labour market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in.

According to Powell, inflation will likely take more than a year from now to return to the 2.0% target. That might have been a signal that rate cuts are not expected in 2023.

At present, consumer prices in the United States are up 6.5% versus last year.

Is it still a bear market rally?

Despite Powell’s remarks, RBC’s Lori Calvasina is convinced that it’s not all that unlikely that the equities market will continue to build on its recent gains moving forward. On CNBC’s “Closing Bell”, she said:

It’s quite possible that we saw the lows in October. We’re going through the final leg of earnings downgrades and markets typically bottom three to six months before that. In general, I think the bears have overstayed their welcome.

The benchmark index is currently up about 9.0% versus the start of the year.

Calvasina agrees that there might be some choppiness in the near term, but her bull case now calls for upside to 4,500 level – another 8.0% gain from here.