CNBC Daily Open: Powell’s comments drag investors down to earth from postelection high

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Postelection rally fades 
U.S. markets fell on Thursday and are poised to end the week lower. The so-called “Trump trades,” in particular, are fizzling out. Europe’s regional Stoxx 600 climbed 1.08%, ending a two-day losing streak. Shares of Burberry popped 18.7% after the British luxury company announced a plan to overhaul the brand. 

Not in a hurry to cut 
The U.S. Federal Reserve doesn’t need to be “in a hurry to lower rates,” Fed Chair Jerome Powell said Thursday. The economy is still strong, Powell noted, and October’s disappointing jobs report was mostly because of hurricanes and labor strikes. Powell’s slightly hawkish tone dampened market enthusiasm and lowered traders’ expectations for a December rate cut.  

Wholesale prices edged up slightly 
The U.S. producer price index rose 0.2% in October, reported the Bureau of Labor Statistics. Though that’s higher than the 0.1% increase in September, the figure was in line with the Dow Jones consensus forecast. Wholesale inflation was at 2.4% for the year. Core PPI, which excludes food and energy prices, came in at 0.3%, matching expectations. 

Disney pluses subscribers 
Disney shares surged 6.2% after reporting fiscal fourth-quarter results that beat Wall Street’s expectations. The media giant’s net income jumped 74.2% year on year. That’s partly thanks to Disney+, its streaming business, which finally turned profitable and added subscribers during the recently concluded quarter.  

[PRO] Betting and hedging big on China 
Michael Burry, the investor who called the 2007 subprime mortgage crisis, is betting on China. Scion Asset Management – a hedge fund that Burry manages – massively increased its stake in three Chinese internet companies. At the same time, Burry seems to be hedging against those bets. 

After enjoying the postelection rally, investors are turning their attention to issues like inflation and interest rates again.  

Consumer and wholesale price increases in October, while coming in as expected, ticked up from the previous month, indicating that there are still pockets of heat in the economy.  

Still, the process of disinflation – in which the rate of price increases slows down – is not a linear one. One month of accelerating prices doesn’t necessarily mean inflation’s back. 

As Fed Chair Jerome Powell noted, the job of getting inflation to the central bank’s “two percent longer-run goal” could be “on a sometimes-bumpy path.” And just as disinflation doesn’t travel in a straight line, neither does the trajectory of interest rates. Powell added that the Fed doesn’t need to be “in a hurry to lower rates” because the of “the strength we are currently seeing in the economy.” 

The hawkish slant of Powell’s comments dramatically lowered traders’ bets of a December rate cut. The chance that the Fed will cut rates by 25 basis points at its December meeting is now 58.6%, compared with 82.5% earlier in the day, according to the CME FedWatch tool. 

BlackRock’s Rick Rieder thinks the Fed will still reduce rates by 25 basis points in December. As for cuts next year, however, “the pace at which that happens and whether they actually need it gets really called into question,” Rieder told CNBC. 

Those concerns overshadowed the postelection euphoria, causing stocks to fall. The S&P 500 slipped 0.6%, the Dow Jones Industrial Average dropped 0.47% and the Nasdaq Composite retreated 0.64%. All indexes are on track to end the week lower. 

The U.S. economy is widely expected to achieve a soft landing. For investors who were riding high on the postelection rally and are now descending to earth, their landing sure feels like a bumpy one. 

— CNBC’s Jeff Cox, Brian Evans and Sarah Min contributed to this report.