August is usually a dull month in financial markets, but one event deserves special attention – the Jackson Hole Economic Symposium.
Organized by the Federal Reserve Bank of Kansas City, it became the number one monetary policy event to watch over the summer. Many times in the past, the Federal Reserve used it to communicate or clarify its monetary policy intentions.
This time is no different.
With only one day until the symposium starts, all eyes are on the Federal Reserve’s Chair, Jerome Powell. He will hold a speech on Friday, less than two hours after the Core PCE Price Index data is released.
Powell’s task is not an easy one. The stock market rallied since his July statement that future interest-rate increases will be data-dependent. So is the Fed likely to pivot on its interest rate path?
Unlikely.
So here are three reasons to sell US stocks ahead of the Jackson Hole Economic Symposium:
US economy has forward momentumFed will keep on tightening for nowS&P 500 meets strong resistance
US economy remains strong
In July, Jerome Powell stated that the Fed remains data-dependent regarding the future path of the interest rates. Unsurprisingly, the stock market rallied, considering that the Fed is closer to a pivot in its monetary policy plans.
But the US economy remains strong. For example, the US job growth was more than double what forecasters expected in July. Moreover, the unemployment rate reached historic lows, despite persistent inflation pressures.
Fed to keep on tightening
The Fed must tighten the monetary policy further. First, it must do that because of a strong economy.
Second, inflation is much higher than the Fed’s target. Hence, on Friday, Powell would likely use a hawkish rhetoric that would hurt stocks in the short term.
US stocks reacted to strong resistance
The S&P 500 rallied since Powell’s July remarks. But after bouncing from 3,700 it found strong resistance at 4,300.
The horizontal resistance level appears to be the neckline of a head and shoulders pattern – a bearish reversal pattern. The market often retests the neckline, just like the index did.
In summary, stocks should have a hard time rallying before and after Powell’s speech on Friday. If anything, a hawkish Fed should weigh on stocks’ short-term perspective.
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