We all saw the big stock sell off last Friday, Jackson Hole plus Jerome Powel sent the markets down.
It’s one of the biggest market falls we’ve had in the last three months. Some had thought the bear market was over. Not yet, bad news keeps coming.
FED Chairman Powell made three clear remarks that caused the market to react.
Number one, he sees the U.S. economy’s underlying momentum remaining strong. This just means the Federal Reserve is likely to keep its policy tight for the foreseeable future. It will not prematurely loosen policy strongholds.
Number two, the Fed is also unconditionally committed to bring down inflation. That’s their number one goal currently. This means they are going to be raising rates. It’s their only way to combat inflation. That’s the tool in their chest. Also, to curb expanding money supply.
Number three, the Fed will not cut interest rates in the middle of a recession. the US are in a recession — a mild recession, but a recession, nonetheless. As a result, with inflation still above target, they don’t want to repeat what happened back in the 70s and 80s. So, we’re still going to see tightening.
The Fed is going to slow down the economy. It’s going to put the US in a recession. The markets have already pulled back this year significantly. So, some have already shorted indices. DAX, FTSE, and DOW are down significantly.
The Nasdaq was down 30% at one point, which is the worst decline to start the year in 50 years. The S&P 500 was down 20%. We have seen a lot of volatility.
Did you short it?
What we have recently are high commodities, peak inflation and worries about the war in Ukraine and its impact on food supplies, all this negative news has been priced into the markets.
This has spurred safe-haven USD to hit massive highs, and our prediction is this will continue after this Friday’s NFP data release.
Hike odds moved after the jobs number that came out in early August because it doubled expectations.
Then the Fed reiterated that the economy is still too strong for its own good and we must tamper things down. That’s why this Friday the jobs number is key.
Expectations are for about 250,000, but if we see another repeat of a 500,000 data, I think we could continue to see the same sell off we had last Friday.
One thing you will see is that when the U.S. goes in a recession and you have a slowdown, you will see the rate increase. So, stocks will drop in general.
Where do the investors put their money?
Cash is king in times of recession, because as the rate goes up, bonds become more attractive. As the rate goes down, it becomes less attractive and asset managers move into stocks.
The stock markets fall on bad news. They never fall on good news. We are seeing more bad news in the economy than we’ve seen in the last five or six years.
This hopefully is the end but listening to the political and economic analysts, inflation will rise even further in the short term and interest rates will follow globally.
So before we start buying stocks again (we had a good run) , we are now looking at ways of making decent trades on the reaction to a bear market and Friday will be one day to begin.
Cash is King, strong USD equates to lower GOLD.
Slowdown in demand drops commodities such as Copper and Oil.
If you trade forex, catch the economic calendar for entry points, because the news moves the markets instantly.
Hold onto your hats tomorrow, even if the jobs aren’t great, the FED will be aggressive next month, so you may get an even better entry point to enter the trades.
What to look for
So, look for between 300,000 and 400,000 new jobs in the report on Friday. This is a good number. It’s not super strong, like last month, but it is strong enough to keep the economy growing and to absorb the large number of vacant job openings. If the number comes in that range? The economic growth light will remain green. This will be strong sell signals all round.