The ups and downs all depend on the Fed!
It’s time to meet again on the weekend. Actually, I don’t think there is any need to write this article, because next week the Fed’s annual Jackson Hole seminar is coming, and Powell and the Fed will discuss whether to enter a cycle of reducing the size of debt purchases.
How the Fed will withdraw from the loose monetary policy will be the main thrust of the market in the coming week. Yesterday the central bank announced that Chairman Powell will deliver a speech at the Jackson Hole meeting next Friday via video.
Fed officials have repeatedly mentioned expectations of accelerating the reduction of debt purchases in many recent speeches and interviews. The market believes that there will be more similar discussions at the Jackson Hole annual meeting starting next Thursday.
The Fed Chairman’s speech is usually the highlight of this year’s event, and previous chairmen have used the meeting to send important messages. The question now is whether Powell will provide more details on how the Fed will begin to reduce debt purchases in his speech on Friday.
After the minutes of the last FOMC meeting indicated that officials were ready to start reducing bond purchases, many believed that the Fed’s “shrinking panic” had been digested, but investors would listen to any further clues about the timing.
Joe Perry, senior analyst at Jiasheng Group, believes that the minutes of the Fed’s July meeting only highlighted the uncertainty of the U.S. central bank’s policymakers about the economic and monetary policy direction for the rest of 2021.
The minutes of the meeting present a mixed picture: Although "most" Fed policymakers are expected to start shrinking this year, there are still "digital people" who are more willing to wait until next year. However, it can be seen between the lines that as long as the economy does not suffer a major downward shock, most Fed members seem willing to start Taper this year.
"The Fed is mainly concerned about two points at this stage: one is the non-agricultural employment data in August, and the other is the extent of the impact of the new crown epidemic mutation virus on the economic recovery." Joe Perry believes that if Powell waits for the Fed's interest rate meeting in September to announce the reduction of purchases. Don't be surprised by the size of the debt.
This will give the Fed more time to observe the US non-agricultural employment data in August, and pay attention to whether the number of confirmed cases caused by the Delta mutant virus is declining. "The key is to see whether Powell will start to reduce the scale of bond purchases before the end of this year at this annual meeting of global central banks. The market currently expects to start raising interest rates in September 2022."
For U.S. stocks, Joe Perry believes that after the Fed announces the Taper, U.S. stocks may face a correction in a short period of time, but the mere tightening of the Fed's monetary policy is not enough to constitute a driving factor for the sharp adjustment of U.S. stocks. The current market focus is still on the U.S. economy. The recovery situation and the impact of the Delta virus. "If the U.S. economy maintains a steady recovery and the employment situation continues to improve, then U.S. stocks may continue to rise."
In fact, there is nothing to analyze for the market next week. The rise or fall basically depends on the Fed. If this meeting announces that it will start to reduce the scale of debt purchases in advance, U.S. stocks will inevitably fall back in the short term. The Fed originally planned to start the reduction at this meeting, but now the Fed’s hawkish representatives have become easing again, saying that the epidemic is too serious, so Don't rush to reduce the scale of bond purchases. The market's surge on Friday was due to the change in the views of this hawkish representative.
From Monday to Wednesday, it is estimated that there will be no volatility in the broader market, sideways and other Fed speeches. After Thursday, the volatility will be quite large, and no one can predict how it will go. You must remember to prepare for hedging when the time comes. Because once you choose the direction down, the adjustment time will certainly not be short. After all, U.S. stocks are already at such a high position, and it is not surprising that they are making a deep correction.
On next Friday, Powell will begin to speak. I won't comment on the importance of this old boy's speech. Now it is employment data, mutation virus, and policy change. The situation is quite complicated. No one knows what will happen. It may be a better choice to move forward in a light warehouse.
U.S. stocks are indeed in a big bubble, but as long as the Fed continues to release water, it will be difficult for U.S. stocks to really fall. After all, the performance of the seven giants of TFAAMNG is still very good. It is estimated that Apple's new product launch conference will be hyped in the short-term. There are three major catalysts in the visible future: ①Any of AMZN and GOOG split stocks ②NVDA replaces INTC as a constituent stock of the Dow Index ③SQ becomes a new S&P 500 constituent stock.
Therefore, no matter how the market is short on U.S. stocks, everyone only needs to remember one position at this stage. As long as the Nasdaq does not fall below 14,500, then do not go short on U.S. stocks. After all, there is still too much liquidity in the market. Who knows the market? How crazy will it be.
