The Nasdaq 100 had losses that exceeded 2%, while the S&P 500 almost completely erased its weekly gain. The yield on the two-year Treasury note, which is more responsive to impending policy changes, increased to almost 5%. Tesla Inc. and Apple Inc. both experienced declines of at least 2.6%, which put pressure on the megacap area. The chipmaker at the head of the fight for artificial intelligence, Nvidia Corp., concluded with a gain of just 0.1% after reaching an all-time high on earnings optimism.
The founder of Miramar Capital, Max Wasserman, compared it to “selling the news.” Although Nvidia produced outstanding results, the market had recognised that. Investors might be realising that the market has had such a strong run, so let’s take a small profit before the Fed puts the brakes on it. If not, they’ll enter again right away.
Read: Washington Edition of Powell’s Jackson Hole Speech
Traders are closely monitoring the annual meeting of the world’s top central bankers in Jackson Hole, Wyoming, where Powell is slated to give a speech on Friday at 10:05 a.m. The Fed chairman is anticipated to use his platform to explain how policymakers will decide when to start reducing interest rates and whether rates should be raised.
According to a 22V Research survey, 78% of investors anticipate Powell to emphasise data dependency. 12% of voters chose financial circumstances as their second most preferred option. Only 21% of investors anticipate a “risk-off” response from the market, while 43% predict a mixed or negligible response, and 37% anticipate a “risk-on” response.
According to Dennis DeBusschere, founder of the New York-based research company, “Powell focusing on data dependency ought to help 10-year yields stabilise.” He pointed out that would also act as a “tailwind” for the growth versus value trade.
Rate “Goldilocks”
Whether Powell would address the enigmatic, nearly abstract number known as r-star has also become a hot subject on Wall Street during the past several days. That rate resembles a “Goldilocks” ratio in that it neither encourages nor discourages economic growth.
Former New York Fed president Bill Dudley and former Treasury Secretary Larry Summers are among those who have claimed that markets continue to underestimate the so-called neutral interest rate. Any indication of an improvement would probably cause rippling effects on international markets, necessitating a reevaluation of where the fair value of Treasury yields is likely to fall.
Powell will probably concentrate on the short-to-medium-term outlook, according to Krishna Guha at Evercore ISI, and avoid making a prediction regarding the r-star.
Expect a fair judgement without any sudden hawkishness, but also without the phrase “Mission Accomplished,” Guha continued. “The Fed has not gone to this extent to allow inflation to escape its control.”
Prior to Powell’s speech, Susan Collins, president of the Federal Reserve Bank of Boston, told Yahoo! Finance that rate increases might be required but added that she wasn’t ready to declare the peak. While this is happening, her Philadelphia counterpart Patrick Harker predicts that interest rates will remain unchanged for the remainder of the year and tells CNBC that “we’ve probably done enough.”
Former St. Louis Fed President James Bullard stated recently in an appearance on Bloomberg Television that plans for the Fed to stop raising interest rates could be delayed if the economy picks up this summer.
“The key question is whether we expect the Powell to remain higher for longer or to play defence against rate reduction. I’m not sure how much of a difference there is, but markets will move in a way that damages the largest positions.
Market participants are anxiously expecting the Jackson Hole presentation tomorrow and hoping that it won’t cause volatility as it has in the past. Powell emphasised the need for economic growth that is below trend at the Jackson Hole meeting last year and said that it is necessary to limit price increases. Evidently, everyone is thinking on the presentation. Excitement at Nvidia’s earnings swiftly gave way to concern over the possibility of a Powell becoming more hawkish.
“Whatever the Fed says, we know they’re rising interest rates at a pace that puts us roughly in the eighth or ninth inning of a baseball game. They are almost there. However, a little disturbance might bring something down when the market is valued at this level and highly.
The combination of high inflation and full employment continues to warrant a tilt towards restrictive monetary policy in the framework of the Fed’s dual mandate. When is something too tight? Now, Jackson Hole is the focus of attention seeking more clarification on that issue.
I had anticipated Powell to be rather hawkish, but given yesterday’s weak PMIs, he may be less so. Nevertheless, he is still likely to express concerns about the inflation not declining quickly enough and say that the market shouldn’t anticipate any rate decreases until at least the first half of 2024.
Boeing Co. and its largest supplier, Spirit AeroSystems Holdings Inc., both experienced losses when the aircraft manufacturer reported incorrectly drilled holes in a part that helps the 737 Max aeroplane maintain cabin pressure.
After providing a sales projection for the current quarter that was in line with expectations, Snowflake Inc.’s stock fell, indicating that businesses are still hesitant to increase their spending for cloud software.
One year after offering a higher price point, Dollar Tree Inc. suffered as its earnings forecast fell short of analyst expectations as the firm deals with issues like higher labour and a less profitable sales mix.