By the time Fed Chair Powell got on the stage yesterday afternoon to deliver his remarks and field questions from journalists, equities were already in a sour mood. Disappointing earnings reports from Google (GOOGL), Microsoft (MSFT), and Advanced Micro Devices (AMD), along with a significant layoff announcement from UPS, had already set a challenging backdrop for stocks.

Chairman Powell's indication that a March rate cut was not the Federal Reserve's "base case" was all that traders needed to hear to initiate a deeper sell-off, sending stocks tumbling lower as the session closed. The Nasdaq 100 fell by 2%, and the Russell 2000 small-cap index dropped by 2.44%.

IWM (Daily)

To be fair, it was only Tuesday that the S&P 500 had reached a new all-time high. Since the October low, mega-cap tech stocks like AAPL, MSFT, and NVDA have had an absolutely remarkable run.

A big sell-off felt like it was overdue.

For the last couple weeks, there have been no shortage of warnings regarding narrowing market breadth and leadership by roughly a dozen "giga-cap" tech companies:

Much of mega-cap tech leadership is so richly valued that selling into earnings reports seems like an inevitable outcome at this point. Only the companies with the biggest blowout quarters and guidance raises will be able to maintain their recent levitation.

While I doubt how much a March rate cut vs. a May rate cut matters in the long run. To a market that is increasingly shortsighted, a six-week 'delay' in the commencement of monetary policy easing seems to matter a great deal.

To be clear, Powell is clearly laying the groundwork for the beginning of a rate-cutting cycle (14:58 mark in this video). However, he also knows that the market is already pricing in a lot of easing and may not feel as inclined to acquiesce until he feels 99% confident that the inflation battle has been won. All signs continue to point to inflation returning to the target range, and a restrictive Fed that continues to drain its balance sheet only adds weight to the downward inflation trend.

Powell knows that once the rate cuts begin it will be much more difficult to reel them back in.

The current setup in US equities is a bit troubling. China's stock market is nothing short of a disaster, meanwhile Europe is showing signs of economic stagnation and impending recession. So far, the US has diverged from these other large economies led largely by its powerful technology base.

Can American exceptionalism possibly be true? To some extent it can absolutely be true. After all, compared to Europe and China, the US practices a more potent style of capitalism with the deepest and most liquid capital markets on the planet. However, the US is also very much dependent on the Rest of the World, particularly in the manufacturing side of the economy.

The announcement of 12,000 job layoffs from UPS was a clear sign that all is not well in the real economy. Moreover, while AI may increase worker productivity, it will also decrease the number of human beings required to complete certain tasks. From my vantage point, we could be in for a painful adjustment to the "new AI economy".

UPS (Daily)

The UPS chart doesn't look like a bull market to me.

Big money portfolio managers have begun to position more defensively. GLD, TLT, and cash cow dividend paying pharma (PFE) and energy stocks (CVX, XOM) are a handful of the places that one can 'hide' out for a while until the correction concludes.

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