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After modest gains overnight and earlier this morning, futures have slipped modestly into the red following yesterday’s Powell-induced decline.  While past declines in response to Powell’s comments have sometimes been justified due to seemingly abrupt changes in policy, moving targets, and/or inconsistencies in his remarks, yesterday’s testimony in front of the Senate contained essentially nothing Fed officials haven’t been saying for the last several weeks, so either the markets didn’t believe what they were hearing for the last month or yesterday was an overreaction.

Markets in Europe are modestly lower at the moment in a follow-through from yesterday and more hawkish commentary from an ECB official who noted that the bank will continue hiking rates for a period of time after the March meeting.  These comments came as Q4 GDP was weaker than expected, and German Retail Sales unexpectedly declined.

Speaking of Europe, while its economy has been lagging behind the US, stocks in the region have continued their recent outperformance of stocks here in the US. The first chart below shows the performance of the FTSE Europe ETF (VGK). After a sharp rally off its October lows, VGK has been in a sideways range for most of 2023 but has still managed to trade within a close range of its 52-week high.  After yesterday’s decline, in fact, VGK was just 7% from a 52-week high.

US stocks, meanwhile, have been much weaker. While the rally in VGK took it back near its highs from last Spring, the rally in the S&P 500 ETF (SPY) barely even took it back above its December highs let alone the peaks from August and April.  After yesterday’s decline, SPY was twice as far below its 52-week high (-14%) as VGK.

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