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The S&P, Dow and Nasdaq indices all hit record highs on Monday, continuing the sharp reversal off one month lows ahead of Jerome Powell's speech at Jackson Hole, Wyoming set for Friday, though Fed officials will meet virtually for their annual symposium.

Jackson Hole 1

Key Points for Jackson Hole

  • Fed officials will meet virtually for their annual symposium, which is normally held at Jackson Hole, Wyoming.
  • The big question, the intention of Fed officials to move away from easy monetary policy.
  • To that end what will Algorithmic traders key in on?
  • Fed officials will aim seek to avoid a 'taper tantrum' set off by algos as they keep ‘taper talk’ going
  • How much will the Delta virus move things out for tapering or postposing discussion thereto

Stockmarkets Sharply Higher To Start the week

The S&P 500 S&P +37.86 at 4479.53 (+0.9%) and Nasdaq Composite +227.99 at 14942.63 (+1.6%) set intraday record highs, with the Nasdaq also closing at a record high. The Dow Jones Industrial Average +215.63 at 35335.71 (+0.6%) trailed its large-cap peers while the Russell 2000 (+1.9%) and iShares Micro-Cap ETF (IWC 143.33, +3.87, +2.8%) outperformed after underperforming last week.

Another boost, and one the Fed will no doubt refer to, the FDA fully approved the Pfizer-BioNTech vaccine for people 16 years and older which is expected to help that vaccination rates increase. In addition, the IHME vaccine model suggested that coronavirus cases could be peaking in the U.S. (conversly this could bring taper talk back on)

Gains were broad-based as advancing issues outpaced declining issues by a 2:1 margin at the NYSE and a 3:1 margin at the Nasdaq. Seven of the 11 S&P 500 sectors closed higher, including the energy sector (+3.8%)as WTI oil prices rebounded +5.4% to $65.60, +3.35. The heavily-weighted information technology sector (+1.3%) advanced 1.3%, while the defensive-oriented utilities (-1.3%), real estate (-0.4%), consumer staples (-0.4%), and health care (-0.02%) fell.

Earlier in the day preliminary manufacturing and services PMIs for August out of the eurozone and U.S. that were expansionary (though they decelerate from July on delta concerns. The 10-yr yield fell one basis point to 1.26% while the 2-yr yield increased one basis point to 0.23%. The U.S. Dollar Index decreased 0.5% to 92.99.

What Last Week's Swoon Told Us

What we do know from last weeks stock swoon to one month lows after the Fed minutes that said most members support slowing down bond purchases this year. Today's stock market rally showed the Fed has an opening to not 'break anymore eggs' by using the Delta virus in a hold off rationale. He could also argue that the inflation is transitional looking at Lumber, Copper and Oil price collapses.

Lumber W 8 20 2021

Copper W 8 20 2021

WTI D 8 20 2021

The Fed governors also have a look at Housing data along with earnings reports from HP, Dell, Best Buy and others to give them a reminder of the consumer. Federal Reserve officials, in numerous recent speeches and interviews, have already managed to speed up expectations for when they could begin to slowly pare back their $120 billion a month in bond purchases.

More of that talk is expected at their annual symposium, which begins Thursday but it is likely to be tempered as the world shudders again from Covid. The Fed chairman’s speech is the highlight of the annual event, and various Fed chairs previously have used the Jackson Hole meeting to send important messages. Anything dramatic is unlikely as that would front run the September FOMC. meeting. He and the other Fed voices would want to see any further fallout from the disastrous Afghanistan crisis and the fallout on President Biden's popularity.

There is also the effect of the Delta virus on the global economy. The Fed knows confidence is key and the preliminary August reading for the University of Michigan Index of Consumer Sentiment fell to 70.20 (consensus 81.20) from the final reading of 81.20 for July. This is the lowest reading since 2011, Lower than pandemic lows, as consumers' inflation expectations rose.

Powell doesn't need to roll the dice here. What he wants, and needs to do is avoid a disorderly reaction or melt down. THis is why clear messaging is critical, markets don't like surprises.

The week has a few economic reports for the Fed to peek at. Existing home sales released Monday with manufacturing, Services and Composite PMI; new home sales Tuesday and durable goods Wednesday. Friday has personal consumption expenditures data and the inflation index, closely watched by the Fed.

Earnings are also expected from companies including Best Buy and Nordstrom on Tuesday, Salesforce.com on Wednesday and HP and Dell Technologies on Thursday.

One would expect volatility around the Fed’s symposium given the release this past Tuesday of minutes from the last official meeting rattled the markets. The minutes described most members of the Federal Open Market Committee as being ready to taper this year if the economy is strong enough. 

Powell could provide a road map for how the Fed will taper, but with a caveat of being able to step back if the Delta Covid variant becomes more serious than expected.

From The TradersCommunity Research Desk

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