Markets could be volatile as investors await what could be a very volatile message from Federal Reserve officials at its annual economic symposium in Jackson Hole later this week. Fed Chairman Jerome Powell speaks at 10 a.m. ET Friday, a highlight of the three-day conference in Wyoming that begins Thursday. Fed watchers expect tough talk from the chairman as he reinforces the central bank’s goal of stamping out inflation and keeping expectations about future price gains under control. To do so, Powell and other Fed officials are expected to signal that they want to keep interest rates higher for a longer period than some investors currently expect, and that message could prompt a volatile reaction. “If anyone thinks there might be some indication that it’s near the end, they’re probably not going to make it,” said Tony Crescenzi, Pimco’s executive vice president and portfolio manager. “It would challenge the policy that worked in the last period of inflation in the 1970s, where stop and go policy was rejected. It is more likely to be a stop and hold policy this time.” What else to watch In addition to the Fed confabulation coming up at the end of the week, there are some economic reports that will be important to watch. On Tuesday there is data on global housing and services sales and S&P manufacturing PMI. Durable goods and pending home sales are out on Wednesday. Data on personal consumption expenditures, including the Fed’s preferred measure of inflation, is released Friday morning before Powell speaks. Retailers will continue to release quarterly results, including Macy’s and Nordstrom on Tuesday. There will also be reports from Gap, Urban Outfitters and Dollar Tree, among others. However, expect the Wyoming Fed meeting to be a major catalyst. “The only thing that matters is Jackson Hole,” said Julian Emanuel, head of equity, derivatives and quantitative research at Evercore ISI. Stocks have been choppy and down last week. The S&P 500 was down about 1% for the week, as of Friday afternoon, its first decline after four weeks of gains. Some strategists note that wild trading in meme stocks, like Bed Bath & Beyond’s big swings, can sometimes be a warning that speculation is running too high and that the market is nearing a top. The market also heads towards the usually negative month of September. Some chart strategists expect to see the market pull back then and possibly into October. They expect a lull to sell in the fourth quarter, a historically positive time in midterm election years. “Because of the seasons, the risks and the meme trading froth, and what is likely to be a hawkish message in Jackson Hole, the risks are to the downside,” Emanuel said. Emanuel said the market is at a difficult point. Some strategists believe stocks may have launched into a new bull market because more than 90% of S&P 500 companies broke above their 200-day moving average late last week. However, the S&P 500 approached its 200-day moving average last week and then reversed. The 200 days were Friday at 4,320. This is simply the average of the last 200 closes and serves as a momentum indicator. A close above would have indicated more gains. “Like everything else, because you’re so close to the 200-day moving average in the S&P, it’s very difficult to determine when it’s a bear market rally, a new bull market, or if you’re entering that zone of indecision. over a period of time,” Emanuel said. Treasury yields have been rising ahead of Jackson Hole. On Friday, the benchmark 10-year yield stood at 2.98%, near the 3% level not seen since mid-July. Jackson Hole Risks Market debate has focused on how much the central bank will raise interest rates at its next meeting on September 20-21, following its three-quarters of a point double-quarter hikes in June and July In the futures market, traders see a strong possibility of a 75 basis point increase. One basis point is equal to 0.01 of a percentage point. Since March, the Fed has raised its fed funds target range to 2.25% to 2.5%. For later this year, the futures market is pricing in a funds rate range of 3.25% to 3.5%. The futures market is pointing to higher rates, from 3.5% to 3.75%, by next April, then showing at least a quarter point cut in the second half of the year. “The Fed is trying to do early hikes,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “They’re trying to get it out of their system and cool it next year. The question is whether we go from cooling to cutting, but I think the Fed is trying to make it clear this week that that’s not on their agenda “. Boockvar said Powell is not likely to break new policy ground in his speech, as former chairman Ben Bernanke did when he talked about quantitative easing during the financial crisis. “He’s already laid out his flight plan,” Boockvar said. Some Fed officials have emphasized that the central bank will not start cutting once it reaches a terminal rate and that it could pursue a policy of higher rates for longer. San Francisco Fed President Mary Daly said Thursday that she supports a “raise and hold” strategy, and once rates reach a certain level, she doesn’t expect the Fed to reverse course. “It’s better for the Fed to show tough love and inflation watchfulness than not to budge,” Crescenzi said. He said that if the central bank engaged in a “stop and go” policy, rates would be higher simply because investors would think the Fed slowed policy too soon to crush inflation. Last week, some investors viewed comments contained in the minutes of the central bank’s latest meeting as somewhat more dovish because they indicated the Fed would delay the size of the cuts. But Fed watchers say the more hawkish message was clear. “These are people looking for doves, and they’re still hawks. The Fed wants to raise rates, keep them there, and when they see that inflation is no longer a problem, they’ll cut,” said Diane Swonk, chief economist at KPMG. “This process is not something that can happen between now and the end of the year.” Swonk said the Fed has no plans to reverse policy, as some market players anticipate. “They’re worried about inflation. The markets want to keep going back to where we were, when the Fed often made rapid changes. That’s where we were,” he said. “The Fed has learned, perhaps to a fault, that it was wrong that inflation was transitory and is also concerned about more entrenched inflation.” Barclays equity strategists note that Fed rate expectations have risen recently, but those rate cuts still come at a price for the second half of next year. “Powell’s speech in Jackson Hole next week should be like this [an] major catalyst, which may lead to a realignment in x asset yields,” the strategists wrote in a note. “The key for stocks is whether Powell will scale back his view of a 2023 easing cycle and guide toward a higher terminal rate, or if it maintains optionality.” Technically speaking, as traders wait for Jackson Hole, the market appears to be showing more downside warnings, according to some chart-watching strategists. “It looks like the summer top of August is at , watching the action in meme. “Names and over-speculation,” said Scott Redler, chief strategy officer at T3 Live. “That move appeared to have expired on Tuesday, when the S&P hit a high of 4,325. There were signs that momentum was slowing and the excess froth gave traders a warning to ease risk and potentially put- be on the short side.” Redler, who watches short-term technicals, said the downside bias was confirmed Friday morning when the S&P 500 broke below the key 4,250 level and stayed there. “The bullish channel that the S&P was riding since the June low, it broke today,” Redler said. It is now watching the 4,177 level for support, and another level below at 4,040. “Since the June lows, we’ve been in an uptrend,” he said. “Today is the day that confirmed that maybe we could see another pullback low towards Jackson Hole and September.” Networks, Zoom Video Tuesday Earnings: Macy’s, Nordstrom, Toll Brothers, Intuit, Urban Outfitters, La-Z-Boy, Advance Auto Parts, JM Smucker, JD.com, Dick’s Sporting Goods, Medtronic 9:45 am S & P Global Manufacturing PMI 9:45 am S & P Global Services PMI 10:00 a. m New Home Sales 7:00 pm Low Naples Fed President Neel Kashkari Wednesday Gains: Nvidia, Salesforce, Box, Royal Bank of Canada, Snowflake, Victoria’s Secret, Petco, Brinker International, NetApp, Autodesk 8 :30 am Durable Goods 10:00 am Pending Home Sales Thursday Jackson Hole Economic Symposium Starts Earnings: Dell Technologies, Gap, Affirm Holdings, Peloton Interactive, Canadian Imperial Bank, Toronto-Dominion, Burlington Stores, Shoe Carnival, Dollar Tree, Dollar General, Coty, Ulta Beauty, Marvell Technology, VMWare, Workday, Grab Holdings, Abercrombie & Fitch, Hain Celestial 8:30am Initial Claims 8:30am Q2 Real GDP (Second) Friday 8:30am Spending on personal consumption 8:30am Leading Economic Indicators 10:00am Consumer Sentiment 10:00am Fed Chair Jerome Powell speaks on the economy in Jackson Hole
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