Powell Doesn't Need to Say Much to Move the Market
Watch for traders selling into market strength.
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After five-straight days of declines, the S&P 500 is trading slightly higher on Friday morning as investors await comments from Jerome Powell at Jackson Hole at 10 a.m. ET.
Although the indexes have seen relatively small losses, the corrective action in growth stocks and the Magnificent Seven this week has been the most severe since the "Liberation Day" tariff selloff back in April. The damage was well hidden by strong rotation into other areas of the market, but there have been growing concerns about valuation in the AI group and related sectors like semiconductors.
There have been some signs of support, but the issue now is how the market will react to Jerome Powell. Powell is not likely to say anything particularly surprising. The Fed is not going to signal what it will do at its next meeting in September, and Powell is sure to say that they remain data-dependent and won’t make any decisions until they have more information.
A couple of weeks ago, Fed Funds futures indicated over a 90% chance of a quarter-point cut at the next meeting on Sept. 17. That has declined to 69% on Friday morning. Investors are growing uncertain about the level of Fed dovishness, and that is a big part of the reason that so many stocks have struggled this week.
The Fed is under tremendous pressure from the Trump Administration to cut rates, but there is a large group of economists who believe that it may be a mistake to rush to do so when the economy is still quite strong and the potential for tariff inflation is so high.
The problem is that the economic bears have been dead wrong for months. They have been yammering about inflation and slowing growth, and it just hasn’t happened. They claim that their timing may be off, but that the fallout of Trump’s economic policies is sure to hit soon.
We will see how things unfold, but the immediate issue right now is whether investors will use the comments by Powell to become more cautious, and whether it will be an opportunity to jump back into some names that have pulled back.
Technically, conditions are deteriorating, and the bears have the edge right now. There is also negative seasonality, adding a headwind. There isn’t much immediate economic news coming up, and it is highly doubtful that Powell is going to sound very dovish. I suspect that Trump will quickly respond to Jackson Hole with more critical comments about the Fed being too late.
I suspect that there are tactical traders looking to sell into any Jackson Hole strength, especially if there isn’t anything new or surprising. My plan is to stay patient and make sure that anything I buy has a strong chart.
At the time of publication, DePorre had no position in any security mentioned.
