Investors Grow Uncertain About a Dovish Fed
Uncertainty about Jerome Powell's upcoming decisions on interest rates drove a slow and dreary session.
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It was a slow and dreary session on Thursday as investors are becoming more uncertain about a dovish Fed, and Walmart WMT failed to live up to expectations. The retail sector was the biggest drag on the market, but small caps IWM held up with a gain of 0.25% while the Magnificent Seven MAGS dropped 0.5%.
This was the fifth straight day of losses for the S&P 500 and the Magnificent Seven, but with the exception of the sharp drop in growth stocks FFTY on Tuesday, the selling has been relatively mild. There is some dip buying interest, but the pullbacks haven’t been deep enough to entice the bargain hunters.
Investors are looking ahead to the Jerome Powell speech at Jackson Hole at 10 a.m. ET on Friday. The great likelihood is that he is not going to say anything new. He is likely to reiterate that the Fed is data dependent, and whether it cuts rates or not at the meeting in September will depend on the data that is released in the interim. Bulls are hoping that he may have a more dovish tone, but there is growing chatter among some economists that the Fed should not cut rates based on the current data. The odds of a rate cut have been falling, but are still quite substantial. That is likely to change on Friday and will drive the market action.
While current action is uninteresting, it is healthy that there is some consolidation and that sentiment has cooled off. Some of it is due to seasonality, but many charts need some resets, and that is what they are doing.
Ideally, some struggles now will set the stage for a glorious end-of-the-year rally, but for now, we need to navigate the fallout caused by Jerome Powell.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
