All Eyes on Fed as Powell's Message Can Drive Large Move
Investors will be listening very carefully to the Fed chair and a dovish posture can influence the market.
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The most remarkable aspect of the market action recently is how sticky it has been to the upside. There has been a long series of new all-time highs and hardly any pullbacks along the way. The S&P 500 dropped 0.27% on Tuesday. That isn’t much, but it is the largest pullback since July 15, when the S&P 500 fell 0.43%. The last time the S&P 500 fell more than 1% was way back on May 21, 2025.
News flow remains very positive, but the technical conditions are unsustainable. Investors don’t need big, ugly headlines to prompt them to protect gains. All it takes is a little weakness to send them to the sidelines.
The main negative on Tuesday was a threat by President Trump to impose sanctions on Russia if they refuse to negotiate on Ukraine. This sent oil prices up nearly 5%. Oil prices have a significant impact on consumer sentiment and inflation. Higher oil prices also make it easier for the Fed to claim that inflation is still a substantial potential issue.
The Fed will be the big event on Wednesday, and conditions are good for a large move. It is widely expected that there will not be an interest rate cut tomorrow, but expectations for a cut in September are building, and investors will be listening very carefully to Jerome Powell. If Powell takes a more dovish posture, it will likely be greeted with some positive action.
Regardless of what the Fed may say or do, technical conditions will remain a problem. We need more consolidation and an end to some of the excessive speculation.
My view is that we will have some choppy action, which will allow the market to rest and reset, but I don’t believe that we will see a major top. There are just too many economic positives. Stocks need a rest, and we are heading into some seasonal weakness in any event. Corrective action now will be a great setup for the fall.
It is a good time to be more cautious, but don’t be too negative.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
