Today (9/7/22), markets rallied by approximately 1.5-2%. Heading into the latter half of the week, the main question for the short-term trader is whether the rally will be sustained. The most significant apparent catalyst will be the Jerome Powell speech at 9:10 AM EST on Thursday. To understand how markets will likely react, it’s important to take a step back and gauge the differential between the Fed’s course of action in the face of inflation relative to current market expectations.
For this, the answer is straightforward. The Federal Reserve will continue a sustained path of tightening for longer than markets currently think. In other words, I believe the general markets are underestimating how long it will take before the Federal Reserve “pivots”. Against the backdrop of this presumption, certain short-term assumptions can be made. Though, to preface, when discussing the short term, an inherently higher degree of uncertainty exists. Let’s just say, “it’s a bumpy ride down”.
Applying this to the Jerome Powell talk on Thursday, and other potential catalysts in the short term, the probability for downward price action is likely higher than a continued rally.
This said, anything could happen in such a short time interval.
