Powell's dovish reassurance, so why aren't the US stocks buying it?

By @TradesMax

In this Monday session, the main contradiction is actually very clear:

On one side, Federal Reserve Chair Jerome Powell has signaled a more dovish stance—at least not in a rush to pivot to hawkishness—giving a boost to the bond market and overall risk sentiment;

On the other side, the conflict in the Middle East continues to escalate. Oil prices have climbed back above $100, and concerns about “high oil prices + high interest rates + slowing growth” have not been relieved.

The result: after U.S. stocks opened higher, they weakened steadily, and finally ended in a very typical defensive close.

Pre-market tests

The pre-market market was not too bad at first. After last week’s back-to-back pullbacks, U.S. stock index futures saw a modest rebound at one point. Traders initially bet on two things:

First, the prior selloff had already been significant, so there was room for a technical, short-term rebound;

Second, Trump’s pre-market comments about discussing a “more rational Z-government” with Iran led some capital to temporarily trade on the idea that the situation might not continue to escalate quickly. This pre-market bounce, in essence, was more like a probe of risk appetite.

But this probe of risk appetite was extremely fragile, because the most core macro asset—crude oil—did not send confirming signals. In the pre-market, WTI crude oil futures have been pushing back toward $102, while Brent crude is even up to the vicinity of $116.

Oil traders are still paying extremely high risk premia for the possibility of a blockade at the Strait of Hormuz. With crude prices failing to show any meaningful pullback, the futures rebound lacks solid macro fundamental support and is destined to be short-lived.

Surge at the open

The Dow, the S&P 500, and the Nasdaq all moved higher at the open, and the S&P 500 at one point was up close to 0.9%. This indicates that in the early opening phase, the market was still trying to deal with the prior streak of declines using “oversold repair.” But the rebound didn’t last long.

U.S. stock market investing news believes that after the S&P 500 surged in the morning, it quickly gave back its gains, then shifted into a choppy, weaker trend. In other words, Monday wasn’t a straight selloff right from the opening; it first attempted a “try to stabilize” move, only to be interrupted later by stronger macro variables.

Key variables during the session

In his remarks that day, Powell clearly conveyed the “not turning hawkish for now” signal: he emphasized that current U.S. monetary policy is “at an appropriate position,” and that facing supply-side energy shocks driven by war and oil prices, the Fed will not react in haste. Before assessing the long-term economic impact of the conflict, the Fed will remain “watchful.”

That statement had an immediate calming effect on the U.S. Treasury market. The 10-year Treasury yield quickly fell back to around 4.34%. However, a cross-asset divergence signal that is extremely worth watching appeared here: oil prices surged, while Treasury yields fell (bonds were being bought).

Under the classic macro trading framework, a jump in oil prices usually boosts long-term inflation expectations, leading to bond selling and higher yields. But during Monday’s trading, the outcome was exactly the opposite. This reveals a logic shift by Wall Street’s main players: bond market traders are no longer simply trading “inflation rebound.” Instead, they have started to price in the risk of “high oil prices backfiring and causing a recession in the real economy” ahead of time.

With recession expectations in the mix, Powell’s verbal reassurance looks pale and powerless. He admitted that evaluating the geopolitical impact is “still too early to say,” which means the Fed is only standing pat and hasn’t genuinely launched a new easing cycle.

Based on the latest pricing in the interest rate swap market, investors have clearly pulled back their bets on rate cuts within the year, and even began to re-price the possibility of an additional rate hike later this year.

Oil prices take the lead

What truly dragged the indices down from their highs again was the Middle East. On Monday, Trump kept releasing negotiation-related signals, and then reiterated that if the Hormuz Strait issue is not resolved, the U.S. may strike Iran’s oil wells, power generation facilities, and key export infrastructure.

In the afternoon, as Trump again issued a tough threat to “completely destroy” Iran’s oil and gas infrastructure, combined with Iran’s parliament responding strongly to a bill on charging fees for the Hormuz Strait, the broader market completely gave up any resistance. The market’s main storyline switched from “Fed dovishness” unilaterally to “oil shock,” and stock index movements then weakened unilaterally with choppy trading.

Looking at the bigger picture, Monday’s market also sent a more important new signal: verbal reassurance is becoming increasingly difficult to change the direction of prices on its own.

On the same day, the Treasury Secretary Bessent said the global oil market still has sufficient supply, and in the future it will gradually restore control over the Strait of Hormuz to achieve freedom of navigation; U.S. escorting or escorting by multiple countries is also among the options. But judging from the reaction in asset prices, traders did not significantly reduce risk premia as a result. Oil prices didn’t fall meaningfully, and U.S. stocks didn’t rebound in any respectable way.

This suggests the market currently doesn’t lack statements—it lacks policy actions that can materially lower risk premia. The market is starting to move from headline trading alone to “whether the final step will be taken.”

Sector performance

By sector performance, tech stocks became the heaviest drag on the overall market all day. The Philadelphia Semiconductor Index plunged more than 4.2%. Aside from valuation compression caused by high oil prices, there was also a shock from the impact of Google’s new storage technology potentially dramatically reducing hardware dependency—leading to a sudden drop in spot prices for memory modules and triggering deep panic on Wall Street about whether the AI hardware cycle could be peaking. High-duration, high-valuation memory chips were hit first: Micron ( $MU ) crashed nearly 10%, and Western Digital ( $WDC$MU$WDC ) sank 8.6%.

A brighter area relative to others was the financial sector (up 1.1%). Its core driver came from the U.S. Department of Labor’s major draft guidance released that day—which clearly allows trustees to add alternative assets to 401 (k) retirement plans. (This policy exposure is also expected to benefit assets such as Bitcoin in the future.)

This means trillions of dollars of pension pools are about to open the door to private equity and credit. Asset management giants jumped on the news: Blackstone ( $BX ) rose 3.3%, while KKR ( $KKR ) gained 2.1%.

In addition, spurred by bullish calls from heavyweight Bill Ackman, Fannie Mae ( $FNMA ) and Freddie Mac ( $FMCC$FNMA$FMCC ) surged more than 51% and 47%, respectively, putting on a rare short-squeeze-like move.

At the close, the Dow rose 0.11%; the S&P 500 fell 0.39%; the Nasdaq fell 0.73%; and the Russell 2000 fell about 1.5%.

U.S. stock market investing news observed that the S&P 500 is currently down about 9.1% from its high earlier in the year. The major indices—including the Dow, the S&P 500, and the Nasdaq—are all down more than 10% from their respective highs. Overall, the market is still in a technical adjustment zone, and any risk appetite “recovery” is far from stable.

Differences on Wall Street are also intensifying further. Wolfe Research recommends sticking to defensive positioning; Morgan Stanley thinks the selling may be nearing the end, and that worries about growth have been overblown; Goldman’s team is relatively optimistic, believing that as long as the conflict doesn’t get out of control, the S&P 500’s 12% earnings growth baseline for this year remains solid. U.S. stock market investing news analysis suggests that Monday’s tape conveyed a reality: Powell may be able to temporarily hold down the “more hawkish Fed,” but he can’t magically suppress the “higher-priced oil.” Until the war in the Middle East reaches a truly clear ending, the market’s pricing power doesn’t rest with the Fed—it rests with the oil market’s supply expectations.

Until mid-April, when the first-quarter earnings season truly reveals companies’ earnings bottom lines, maintaining sufficient cash positions and avoiding tech companies with high valuations and weak cash-flow support remains the most prudent strategy for now.