There is a superstition that bad things comes in threes. Well, the S&P 500 and Nasdaq Composite have experienced three straight losing weeks. That is perhaps why the equity futures market is looking better this morning, thinking the “bad” stuff is over.
It is hard to say, but in any case, the S&P 500 futures are up 13 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 76 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 42 points and are trading 0.1% above fair value.
The upside buying has been driven by an inclination to buy on the weakness. It doesn’t seem to be any more than that considering that market rates are moving higher, the People’s Bank of China disappointed with a smaller-than-expected cut to its one-year loan prime rate and no change to its 5-year loan prime rate, and Tropical Storm Hilary has inundated Southern California with a load of disruptive rainfall.
Still, there is a bid in stocks this morning in front of a big week of news that will include results of a UAW strike authorization vote, NVIDIA’s (NVDA) earnings results, existing and new home sales reports, and Fed Chair Powell’s much discussed speech at the Jackson Hole Symposium on Friday.
The latter is much discussed because there is a lot of handicapping on what he might say. He might suggest the neutral rate needs to be higher; he might suggest the Fed can afford to be more watchful now of the lag effect of prior rate hikes; he might suggest that the Fed isn’t even thinking of cutting rates in 2024.
It really is anyone’s guess. We are guessing, however, that he won’t be as terse as he was last year, warning about the pain to households and businesses that will come with the effort to bring down inflation. Rather, he may be more reflective, talking about the pain that high inflation has brought to households and businesses and that the Fed has made a lot of progress in bringing down inflation.
He won’t say, however, that the work to bring down inflation is done — and this is where most of the market-moving capacity might live. The manner in which he characterizes how much more work the Fed might have to do is what will drive the market’s reaction for better or worse.
For now, the stock market is looking a little better while the Treasury market is looking a little worse. The 2-yr note yield is up six basis points to 4.97% and the 10-yr note yield is up five basis points to 4.30%.
Presumably, if the interest rate view worsens as the day progresses, the stock market view is apt to as well.
Originally Posted August 21, 2023 – Feeling a little superstitious
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