All eyes on Fed Chair Powell’s Jackson Hole speech today

The Jackson Hole meeting later today will be one of the most important meetings of recent times where major central bankers will gather together to define policies going forward particularly in terms of inflation/ deflation dynamics.

Unfortunately the meeting is going to be online. This has been a key fixture of the economic calendar since 1982. With the uncertainties prevailing in supply chain disruptions anything less than a signal from Mr Powell that some form of average inflation targeting is imminent may destabilize the markets. Mr Powell is likely to acknowledge that a period of inflation overshoot is necessary. There is nothing that they can do with interest rates at the moment and negative interest rates is not that Fed will entertain anytime soon though synthetically it can happen. In the present environment Powell is likely to imply that rates have to stay as long as they can and higher inflation will be tolerated by central banks to support economic activity.

Yesterday was an unusual day in the US equities markets. The rise in the markets have been completely driven by tech and communication services sector companies. The 92 stocks in the S&P 500 which constitutes this sector has dramatically outperformed the other 408 stocks that make up the S&P 500 . These 408 stocks are in negative territory. So from a performance point in 2020 there’s first tech and then there’s everything else . At the top of the pile of techs Apple rules the market in terms of market cap at 2 trillion dollars. Only two years back it was at one trillion. Other big names in tech that are not that far behind are Amazon and Microsoft each with a market cap of 1.6 trillion dollars each.

Equities

Five days in a row the S&P 500 has closed higher and four out of the five days breadth has been lower meaning the NYSE advance/ decline ratio closed with more issues down than up . The same is true for NYSE up and down volume. As upward momentum is continuing to wane , investment advisors are getting more bullish.

A good portion of yesterday’s advance in the S&P 500 was because a single stock, Salesforce.com which is being added to DJIA on Monday. It gapped strongly higher at the open and jumped 29 % intraday. When the March collapse happened we had recommended four stocks to buy one being Salesforce.com. The other three were Amazon, Facebook and Docusign.

The risks currently are aligned for a move up to 3500 to 3535.

Bonds

The bonds are poised for a significant move down but the only fear is if there will be more side ways activity on the top side.

Euro

The Euro’s corrective move is getting more complex than we thought . Any up move should be capped under 1.1900.

Gold

Gold has also taken a complex correction but think the upside should be limited to 1965. A break below yesterday’s low at 1902 should set the ball rolling for the downside.