What’s driving markets

Depending on Powell’s comments Tuesday, the Dow may avoid a fourth day losses, while the S&P and the Nasdaq Composite have closed lower the past two days.

The central banker will be interviewed by David Rubinstein, the co-chairman of private-equity giant The Carlyle Group, at 12:40 p.m. at the Economic Club of Washington, D.C.

“While he has remained tight-lipped at similar events in the past, Friday’s jobs release and the realignment of interest rate futures to anticipate a higher rate for longer could allow him to relish his victory,” said David Stritch, currency analyst at Caxton in London.

Last week, the U.S. Labor Department reported a 517,000 surge in nonfarm payrolls, as well as a drop in the unemployment rate to 3.4%. Interest-rate futures implied a terminal Fed rate of 5.157%, which according to Deutsche Bank was the first new high since early November.

Neel Kashkari, president of the Minneapolis Fed, set the stage Tuesday with calls to raise rates aggressively. Kashkari, who spoke in a CNBC interview, is a voting member of the Federal Open Market Committee, which sets the benchmark interest rate.

On Monday Atlanta Fed President Raphael Bostic told Bloomberg that the jobs report means interest rates may have to rise more than he’s previously forecast. Bostic is not an FOMC voting member.

“I don’t think he’s going to do anything different,” said Kent Engelke, chief economic strategist and managing director at Capitol Securities Management. “I think they’ve already telegraphed what he’s going to say.” Namely, a federal funds rate that sticks above 5% this year, Engelke said.

There’s been a brewing stand-off between the Fed and one school of thought in the market that the Fed will not get to 5% after all. “The market is challenging his integrity, challenging what the Fed said they are going to do. And in my view, [Powell] can’t back off now.”

Besides the Powell speech on Tuesday, Fed Vice Chair for Supervision Michael Barr is also scheduled to speak Tuesday at 2 p.m. ET also.

Then there’s President Joe Biden’s State of the Union address Tuesday evening. Engelke is hoping for conciliatory statements from Biden on bipartisan work to raise the debt ceiling, but he’s not holding his breath.

If Powell starts to sounds too hawkish for investors, there’s downside risk, said David Rosenberg, the former chief North American economist at Merrill Lynch and head of Rosenberg Research.

“While the market pullback from overbought levels has thus far been quite orderly, there is the potential for this event to result in more substantial selling pressure,” Rosenberg said in a Tuesday note. He’s previously warned stocks could drop 30% from their current levels.

Meanwhile, U.S. data on international trade showed America’s trade deficit hit a record $948.1 billion last year. It’s the third straight year for an all-time deficit, with the trade gap widened by steep oil prices and steep consumer appetite for new cars, cell phones and other products. The 2022 deficit is a 12% increase from 2021’s trade deficit.

Data on U.S. consumer credit is also expected Tuesday afternoon.

Companies in focus

• Bed Bath & Beyond
  BBBY,
  -47.01%
  shares slumped more than 45%, after seeing strong gains Monday before the retailer said it plans to sell convertible preferred stock as well as warrants to purchase common shares and convertible preferred stock in a move to raise at least $225 million initially and ultimately more than $1 billion.

• Hertz Global Holdings
  HTZ,
  +8.31%
   gained more than 7% after the car rental company reported fourth-quarter profit that dropped from last year but topped expectations, aided by a post-pandemic demand recovery. 

• DuPont de Nemours Inc.
  DD,
  +5.82%
  shares are up roughly 5% after the chemical company beat fourth-quarter estimates, even though forward guidance didn’t live up to analyst expectations. For this year’s first quarter, Du Pont is expecting adjusted EPS of 80 cents and sales of $2.9 billion, while FactSet consensus called for EPS of 88 cents and $3.1 billion in sales.

• Royal Caribbean Group
  RCL,
  +2.62%
  shares are up more than 2% after the cruise operator reported a smaller-than-expected fourth-quarter loss and a rosy outlook for 2023.  “Leisure travel strength continues as consumer spend is shifting towards experiences, with cruising remaining an attractive value proposition,” said Chief Executive Jason Liberty.