Stocks jump after Powell signals rate hikes will ease

There was a lot of pressure on Federal Reserve Chair Jerome Powell to show that he and the rest of the Fed are still concerned about inflation but also ready to finally pull back on its historically aggressive pace of rate hikes. It looks like he just might have stuck the landing.

Stocks reversed course and turned higher in midday trading Wednesday after Powell said in a speech that "it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down."

The Dow rose about 75 points, or 0.2%.

The S&P 500 gained 0.6%.

The Nasdaq Composite rallied 01.3%. 

Treasury Secretary Janet Yellen called for greater oversight of crypto markets, citing the collapse of FTX as a wake-up call for regulators. 

“This is an industry that really needs to have adequate regulation, and it doesn’t,” Yellen told New York Times journalist Andrew Ross Sorkin at the DealBook Summit in New York.

The FTX fallout over the past few weeks “couldn’t provide a better illustration” of why regulatory gaps need to be closed. One upside of the implosion, Yellen said, is that it hasn’t spilled over to the banking sector.

The fall of FTX, the bankrupt crypto exchange founded by Sam Bankman-Fried, has put a harsh spotlight on the relatively lax oversight of the crypto industry, spurring calls for Congress and US financial regulators to do more to set rules in the often wildly speculative and volatile market for digital assets. 

Earlier Wednesday, Senator Sherrod Brown of Ohio, a longtime advocate of greater oversight of the industry, wrote a letter to Yellen urging her to work with lawmakers and regulators to crack down on crypto companies to prevent harm to investors and avoid contagion into traditional financial markets.  

“The failure of this crypto exchange brings to mind the litany of financial firm failures due to the combination of reckless risk taking and misconduct,” Brown wrote. 

"FTX’s business model combined three of the most common hazards in financial markets—leverage, illiquid holdings, and extreme concentration," he added.

Brown pointed to recommendations in an October report from the Financial Stability Oversight Council, or FSOC, laying out proposed regulatory approaches for the industry.

"Single regulatory agencies currently generally do not have a comprehensive view of crypto asset entities’ activities," Brown wrote. "I look forward to working on such legislation with you and the FSOC agencies." 

Investors were anxiously waiting for Jerome Powell to give a speech about the economy, inflation and interest rates Wednesday afternoon. Stocks were mostly in the red ahead of the remarks.

Wall Street is looking for more clarity about future rate hikes. The market enjoyed a massive rally in October on hopes that the Fed would soon reduce the size of its interest rate increases. But stocks have been more volatile lately as investors fear that the Fed may still be nervous about inflation.

The Dow fell about 225 points, or 0.7%, in midday trading.

The S&P 500 dipped 0.3%.

The Nasdaq Composite was flat. 

Kraken, the third-largest crypto exchange in the world, will lay off about 30% of its staff, or 1,100 people, the company announced Wednesday.

Kraken CEO Jesse Powell said in a blog post that the company was adapting to "current market conditions." The layoffs, he said, were necessary steps in the company's attempt to "weather crypto winter."

The crypto expansion over the past few years meant Kraken "had to grow fast, more than tripling our workforce," Powell wrote. This year "macroeconomic and geopolitical factors have weighed on financial markets," and severely limited that demand.

“I remain extremely bullish on crypto and Kraken,” Powell added.

Crypto exchanges have been experiencing more regulatory scrutiny and withdrawals since Sam Bankman-Fried’s FTX fell apart and filed for bankruptcy earlier this month.

The lending arm of crypto brokerage Genesis suspended redemptions and new loan originations earlier this month after an “abnormal” number of withdrawal requests that exceeded its current liquidity, citing market turmoil from the failure of FTX.

Bitfront, a crypto exchange backed by Japanese social media app Line, announced it would shut Tuesday down after failing to overcome turmoil in the industry.

The company said it had been unable "to overcome the challenges in this rapidly-evolving industry," but distanced its decision from the implosion of FTX.

"Please note that this decision... is unrelated to recent issues related to certain exchanges that have been accused of misconduct," it added.

Prices of digital currencies have plummeted. Bitcoin, the world's biggest cryptocurrency, has fallen about 65% so far this year. It was trading at about $16,828 on Wednesday afternoon, according to CoinDesk.

People may no longer be as worried about Covid-19 when looking to take a trip. But surging prices have replaced the pandemic as a top concern for travelers.

"People are slightly reducing the length of trips," said Axel Hefer, CEO of Trivago (TRVG), a European hotel and airline comparison site, to Alison Kosik on the CNN Business' "Markets Now" show.

Hefer said that travel volume has come "under pressure" due to higher prices.

But people are still willing to go on trips. Hefer said Las Vegas, New York and Orlando remain popular destinations for tourists looking to vacation in the United States.

And Americans are still taking advantage of a stronger dollar and traveling to London, Dubai and Istanbul.

Wall Street is hoping that the Federal Reserve is getting ready to slow down its pace of interest rate hikes. Investors are eagerly awaiting a speech from Fed Chair Jerome Powell later Wednesday. But one market expert is worried that the damage from existing rate increases have still yet to hit the economy.

"I personally believe the Fed has already done too much," said David Rosenberg, founder and president of Rosenberg Research, to Alison Kosik on the CNN Business "Markets Now" show.

Rosenberg said he thinks there will be a recession in 2023, and he is concerned that stocks still have room to fall as a result.

"The Fed is not taking any prisoners, but what's going to end up in jail is the economy," he said, adding that there is "no get out of jail free card even with a mild recession."

"You don't get a mild bear market. You don't get much of a recovery. You bounce along the bottom for long period of time," he said.

Still, there could be some opportunities for investors...even faced with this backdrop. Gargi Chaudhuri, head of iShares investment strategy, Americas at BlackRock, told Kosik that investors should be looking for fixed income as a way to prop up their portfolios.

"We got used to this world of very close to zero interest rates," Chaudhuri said, adding that "bonds are back."

Chaudhuri said that thanks to the Fed, investors now need to "immunize our portfolios for higher inflation."

Hackers are everywhere. Consumers and businesses need to be vigilant. So you'd think that companies in the burgeoning world of cybersecurity software would be thriving...despite worries about a broader economic slowdown. But that's not the case.

CrowdStrike, a leading provider of cloud-based cybersecurity services, said in its latest earnings report after the closing bell Tuesday that while overall sales growth was still robust, customers are growing more cautious about what they are looking to spend.

"Increased macroeconomic headwinds elongated sales cycles with smaller customers and caused some larger customers to pursue multi-phase subscription start dates," said CrowdStrike’s co-founder and chief executive officer George Kurtz in the earnings release.

Translation? Small businesses are taking longer to sign deals, and big companies want financial flexibility as well. Kurtz added during a conference call with analysts that "while sales cycles lengthen, we believe the vast majority of these deals are not lost, just delayed."

Wall Street didn't like the sound of that. Shares of CrowdStrike (CRWD) plunged 18% on the news.

The number of job openings in the United States dropped in October, but the labor market still remains historically tight despite the Federal Reserve's efforts to cool demand and bring down inflation.

There were 10.3 million available jobs last month, down from nearly 10.7 million in September, according to the latest monthly Job Openings and Labor Turnover Survey (JOLTS) released Wednesday by the Bureau of Labor Statistics.

Economists had expected 10.3 million openings in October, according to consensus estimates on Refinitiv.

The US trade deficit jumped 7.7% to $99 billion in October and exports fell 2.6% to $173.7 billion, according to advance estimates released Wednesday by the Commerce Department.

It was the second consecutive month that the nominal-goods trade deficit widened, and exports are falling at a time of slower global economic growth and a stronger US dollar.

Within exports, consumer goods sank 9.4% and industrial supplies fell 4.7% from September.

"Trade will likely be modestly negative for growth through the rest of the year and in 2023 as slowing global growth and a deteriorating global economic outlook weigh on exports," PNC senior economist Abbey Omodunbi said in a statement.

Wednesday's report also showed that retail inventories decreased by 0.2% in October, indicating a pullback in consumer demand.

The goods trade deficit peaked at $125.6 billion in March and fell for five consecutive months before growing again in September and October, Omodunbi said.