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Analysis: After Powell’s speech, the markets sigh with relief, but more turbulence is sure to come.

Following a speech by Federal Reserve Chairman Jerome Powell on Wednesday, a rise in American stocks and bonds accelerated. But some investors are worried that an upcoming recession could slow growth in all types of assets.

Despite the fact that the Fed’s rate increases have hurt asset prices this year, momentum has recently been on the bulls’ side. While rates on the benchmark 10-year Treasury, which move inversely to prices, are down at roughly 3.6% from a 15-year high of 4.3% earlier this year, the S&P 500 has increased by almost 14% since its October low.

The initial response to Powell’s speech on Wednesday underlined the recent upbeat sentiment among investors. The S&P 500 went up by more than 3% after Powell said that the Fed might stop raising interest rates as soon as December. However, he also said that it’s not clear how high rates will need to go in the long run as the central bank fights the biggest rise in inflation in decades.

Related: Before Powell’s speech, the dollar is about to have its worst month since 2010.

However, a few market participants think the recent gain in equities and bonds will eventually expire, as has happened to a few earlier rebounds this year. Year to date, the S&P 500 is down 14.4%.

Future inflation and employment reports, which are scheduled for December 2 and December 13, could prove to be short-term roadblocks if they fail to demonstrate that the rate increases the central bank has already implemented this year have adequately cooled the economy.

In October, consumer prices in the U.S. went up less than expected, which added to the idea that inflation was going down.

Further out, some of the top Wall Street institutions are now predicting that the Fed’s tightening of monetary policy will trigger a recession in 2019.

Recession predictions have gained credence as a result of the inversion of the U.S. Treasury yield curve, a signal that has previously been associated with downturns. Recently, the yield differential between two-year and ten-year Treasuries reached its largest level since the dot-com bubble.

According to Jake Jolly, senior financial strategist at BNY Mellon, “our belief is that this is not a lasting rally” (NYSE:BK). “The likelihood of a recession next year is high, which will put pressure on risky assets like equities.”

With “Hawkish Expectations,”

Risk asset prices increased on Wednesday as a result of “hawkish expectations that had built up ahead of Powell’s remarks, the assurance of a slowdown to a 50 bps rate hike pace, and the absence of a clear escalation of the hawkish message delivered at the early November FOMC meeting,” according to Citi’s analysts.

They conclude that Powell is now concentrating on non-shelter service inflation, which will be harder to curb given the “remaining extremely tight labour markets.” Powell highlighted on Wednesday that important service price indicators are still high. According to data made public earlier in the day, there are still roughly 1.7 job opportunities for every unemployed person.

In reference to the Fed’s recent round of four 75-basis-point hikes intended to slow the economy, Jake Schumeier, a portfolio manager at Harbor Capital Advisors, said that Powell “seemed to come here and indicate that they are satisfied that the brakes are working.”

However, he added that after we go through seasonal tendencies towards the end of the year, “the market seems positioned for a slowdown, so it will restrict the gains.”

Bank of America (NYSE:BAC), one of the institutions predicting a downturn, thinks that the S&P 500 will trade mostly flat while markets adjust to “recession shock.”

Related: Asian stocks go up despite uncertainty in China, and people wait for Powell’s speech.

Although a recession is likely, the BlackRock (NYSE:BLK) Investment Institute stated on Wednesday that “stock values don’t yet reflect the damage coming.” Also, they don’t own enough long-term government bonds because they think that if inflation stays high during a recession, central banks won’t stop lowering interest rates.

It will be interesting to see how economic concerns affect the market’s short-term bullish outlook. For the first time since April, the S&P 500 traded above its 200-day moving average on Wednesday, a development that some chart-tracking investors see as a hint of short-term equity strength.

Instead of protecting against potential drops, traders in the options markets seem more concerned with avoiding missing out on future stock-gain opportunities. Data from Trade Alert shows that the daily trade in bearish put contracts vs. bullish call options on the SPDR S&P 500 ETF Trust (ASX:SPY) options, which mirror the S&P 500 index, is at its lowest level since January 2022.

“Since the most recent inflation figure, the path of least resistance has been upward,” according to Sameer Samana, senior global market strategist at the Wells Fargo (NYSE:WFC) Investment Institute. “Upward momentum will continue unless someone explicitly stops it.”

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