August 29, 2022
Good morning,
Friday’s 8 min speech in Jackson Hole by Fed Chair Jerome Powell seemed to be largely a reiteration of his prior messaging – perhaps more forthright – but it hardly represented a significant change in the course of the Chair or the Fed. And yet, the S&P 500 was down -3.4% on the day (-4.0% on the week). For a very low volume August week, one might think it was an over-reaction by the market. After all, bonds barely budged Friday. However, we start this week off almost another one percent on Futures with a weekend to digest Friday’s market action. Scratch the low volume over-reaction theory.
Apparently a very large percentage of rally participants bought into the Fed pivot story and were pricing in a very soft landing for the economy. Does last week’s market action mean we have to go back to recent market lows or lower before inflation is tamed and the Fed can stop tightening? It’s possible but not certain. I suspect the market’s reaction to September’s employment and inflation data in the few weeks ahead will give us a good gauge as to whether lower lows are ahead or not.
Be well,
Mike