Aggressive Traders Are Front Running a Sell-the-News Fed Speech
The market has struggled as investors get ahead of Fed Chair Jerome Powell's comments from Jackson Hole.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
The market struggled on Thursday as aggressive traders front run a potential "sell the news" reaction to Jerome Powell’s speech on Friday morning at Jackson Hole. The indices have gone practically straight up for more than two weeks and have been pricing in a Goldilocks economics narrative in which inflation is not too hot and economic growth is not too cold.
It is logical to assume that Powell’s Jackson Hole comments could trigger some profit-taking as both indices and many stocks are so extended. Why wait for the actual event?
The S&P500 had its worst day since the bottom on August 5, 2024, when it was down 2.9%. Breadth was more than two-to-one negative, but small caps had a small amount of relative performance. Mostly, what occurred was some old-fashioned profit-taking in stocks that made big moves.
While the market has been quite optimistic about what Powell might say, it is unlikely that he is going to signal anything surprising. It is highly likely that the Fed will cut rates at its September meeting, but the main question is whether it will be at a quarter or a half point. Powell isn’t going to resolve that issue tomorrow, but will probably indicate that the Fed will consider additional data that is released prior to the meeting date on September 18, 2024.
What is important to recognize about events like Powell’s speech is that there are billions of dollars that will be traded on the news, regardless of what is said. It is a catalyst for a trade, even if there isn’t anything at all new or surprising. The market will move on what is said. How it moves is the big unknown.
Powell is scheduled to speak at 10 a.m. ET, and the speech text will probably be released early. With the selling on Thursday, there is a little less risk of a sell-the-news reaction, but the market is still quite oversold, and further upside may not hold.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
