Here's why hawkish Powell testimony might not derail the stock market rally

Hey there readers. Phil Rosen here — writing to you from behind a cup of coffee that definitely feels more expensive than it was a year ago.

You don't need me to tell you inflation has stayed stubbornly high for a while now, despite the Federal Reserve's aggressive bid to cool it down.

In June, inflation reached a four-decade high, and while it's eased somewhat since then, everyday Americans are still feeling the heat.

Today, all eyes will be on central bank chairman Jerome Powell as he begins two days of hearings on Capitol Hill.

As things stand, the narrative leading up to this has been confusing. Consumer spending is strong, the jobs market is holding steady, and the economy is still expanding.

A strong economy only complicates Powell's mission to tame inflation, because it implies that interest rates may need to keep moving higher to cool down the economy.

"The disinflation momentum we need is far from certain," San Francisco Fed President Mary Daly said this weekend. "It's clear there is more work to do."

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1. All told, stocks have held up surprisingly well amid heightened uncertainty around interest rates.

Usually, markets get more volatile as the monetary policy outlook remains muddled, but that hasn't quite been the case.

According to DataTrek Research, that resilience comes down to earnings expectations.

Fed policy aside, the stock market has marched higher to start the year, with the S&P 500 gaining about 6% over the last nine weeks.

Wall Street analysts have cut their earnings estimates for the year by 3.4%, DataTrek co-founder Nicholas Colas said, but that downgrade isn't as severe as those of 2015 and 2016, both years when investors were positioning for a recession.

"Yes, interest/discount rates are higher but without a material deterioration in earnings expectations that dynamic plays second fiddle to a stable outlook for earnings," Colas wrote in a note to clients.

The famously bullish Fundstrat head of research, Tom Lee, is betting on more upside for stocks in the near-term, predicting a strong rally through April.

Stocks could climb 5% in that window, Lee explained, because there's a chance the Fed pulls back on rate hikes still.

To be sure, the latest inflation reading of 6.4% remains well above the Fed's 2% target — but that won't get in the way of stock gains, in Lee's view.

"Median gain of March and April are the strongest," Lee said. "Hence, we think the next 8 weeks is a period of 'buy the dip.'"

What are you watching for in Jerome Powell's testimony this week? Tweet me (@philrosenn) or email me ([email protected]) to let me know.

In other news:

2. US stock futures rise early Tuesday, as investors await the two-day testimony of Fed Chair Jerome Powell. Meanwhile, fresh data on wholesale inventories and consumer credit due later should shed light on the economy. Here are the latest market moves.

3. Earnings on deck: Ashtead, Zalando, and Greggs, all reporting.

4. Here's how to invest in the ChatGPT-driven AI boom. Strategists from Credit Suisse shared six stocks that have exposure to the burgeoning sector and could gain more revenue as the trend grows. See the full list.

5. US natural gas prices dropped on Monday. Henry hub natural gas futures for April fell to $2.62 per million British thermal units, its lowest levels in a week. The streak of mild weather has helped keep prices low all winter.

6. The bear market rally isn't over yet as stocks just survived a crucial test. That's according to Morgan Stanley's Mike Wilson. He acknowledged that Friday's price action suggests a rally in the near-term — but ultimately stocks have room to fall.

7. JPMorgan CEO Jamie Dimon said the US can still avoid a recession. But if a downturn does arrive, the American consumer is stronger going into it than they were ahead of the Great Financial Crisis, the exec said. In a Monday interview with Bloomberg, Dimon also explained why the Russia-Ukraine war poses the biggest geopolitical threat since World War II.

8. This real estate investor owns over 1,000 units and leveraged his equity to retire early. He explained how he's been able to harness the "velocity of money" to make millions of dollars of extra net worth. Read his story.

9. Meet a 40-year stock trader and mathematician who had a 366% return. She read over 700 trading and investing books and developed her own trading indicator. Here are her four biggest tips — and the winning strategy she learned from her worst mistake.

10. Goldman Sachs forecasted that Apple stock could jump 32%. The market is currently underestimating the tech giant's influence and ecosystem, analysts said. Thanks to premier hardware design and brand loyalty, Goldman initiated coverage of the tech giant's stock for the first time in nearly six years.

Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email [email protected].

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.