CNBC Daily Open: Powell’s comments gave investors a reality check

Jerome Powell, chairman of the US Federal Reserve, at Music Hall at Fair Park in Dallas, Texas, US, on Thursday, Nov. 14, 2024.

This report is from today's CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribehere.

What you need to know today

Postelection rally fades

U.S. markets fell on Thursday and are poised to end the week lower. The so-called "Trump trades," in particular, are fizzling out. Breaking from Wall Street, Asia-Pacific stocks mostly rose on Friday. Japan's Nikkei 225 added 0.28% on news that the country's economy expanded in the third quarter, while China's CSI 300 dropped almost 1% after it was reported that China's real estate troubles worsened.

Not in a hurry to cut

The U.S. Federal Reserve doesn't need to be "in a hurry to lower rates," Fed Chair Jerome Powell said Thursday. The economy is still strong, Powell noted, and October's disappointing jobs report was mostly because of hurricanes and labor strikes. Powell's slightly hawkish tone dampened market enthusiasm and lowered traders' expectations for a December rate cut.

Japan's third-quarter GDP rises

Japan's economy expanded 0.3% in the third quarter, compared with a year earlier. The increase in GDP is a turnaround from the previous quarter's contraction of 1.1%, and snaps two consecutive quarters of year-on-year decline. On a quarterly basis, GDP rose 0.2%, in line with estimates from a Reuters poll, but that's lower than the second quarter's 0.5% increase.

China retail sales pick back upChina's retail sales in October rose 4.8% year on year, reported the National Bureau of Statistics. It's higher than the 3.8% expected in a Reuters poll and an increase from September's 3.2% growth. However, investment in real estate between January to October slumped 10.3% from a year ago — the steepest drop in almost two years, according to data from Wind Information.

[PRO] Nvidia to uplift little-known Korean firmNvidia's meteoric rise has lifted many associated chipmakers. As Nvidia transitions to its next-generation AI chip, one little-known South Korean firm is becoming such a crucial linchpin in Nvidia's production process that Wall Street bank Citi gave the firm a 40% potential upside within the next 12 months.

The bottom line

After enjoying the postelection rally, investors are turning their attention to issues like inflation and interest rates again.

Consumer and wholesale price increases in October, while coming in as expected, ticked up from the previous month, indicating that there are still pockets of heat in the economy.

Still, the process of disinflation – in which the rate of price increases slows down – is not a linear one. One month of accelerating prices doesn't necessarily mean inflation's back.

As Fed Chair Jerome Powell noted, the job of getting inflation to the central bank's "two percent longer-run goal" could be "on a sometimes-bumpy path." And just as disinflation doesn't travel in a straight line, neither does the trajectory of interest rates. Powell added that the Fed doesn't need to be "in a hurry to lower rates" because the of "the strength we are currently seeing in the economy."

The hawkish slant of Powell's comments dramatically lowered traders' bets of a December rate cut. The chance that the Fed will cut rates by 25 basis points at its December meeting is now 62.6%, compared with 82.5% earlier in the day, according to the CME FedWatch tool.

BlackRock's Rick Rieder thinks the Fed will still reduce rates by 25 basis points in December. As for cuts next year, however, "the pace at which that happens and whether they actually need it gets really called into question," Rieder told CNBC.

Those concerns overshadowed the postelection euphoria, causing stocks to fall. The S&P 500 slipped 0.6%, the Dow Jones Industrial Average dropped 0.47% and the Nasdaq Composite retreated 0.64%. All indexes are on track to end the week lower.

The U.S. economy is widely expected to achieve a soft landing. For investors who were riding high on the postelection rally and are now descending to earth, their landing sure feels like a bumpy one.

— CNBC's Jeff Cox, Brian Evans and Sarah Min contributed to this report.