If one has followed these pages for any duration more than one year, the reader would be wise to recall that this author has a tendency to remember historical patterns and then recall them for purposes of analyzing short term and intermediate term market action.
Last year the markets built up this great hope that the Jackson Hole economic symposium would provide a Jay Powell speech where he declared victory over inflation and all but cut rates while cutting the heart out of a wild bear on stage and drinking its blood.
The hyper bullish masses got this instead:
Good morning. At last year’s Jackson Hole symposium, I delivered a brief, direct message. My remarks this year will be a bit longer, but the message is the same: It is the Fed’s job to bring inflation down to our 2 percent goal, and we will do so. We have tightened policy significantly over the past year. Although inflation has moved down from its peak—a welcome development—it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.
The build up to his speech in the markets looked like this:
The semiconductors showed some hope also, but a warning in a similar manner.
The consequences of those words by Jay Powell and the market action which followed was not pretty.
Same but worse for the semis.
If the pattern remains similar, the Nvidia earnings announcement on Wednesday August 28th will probably be a mirroring to the peak last year with a spike up after hours and selling into the holiday weekend. The semiconductors have been the screaming warning as to what is going on and based on the last six months, there is little doubt they will do so heading into a potential September full blown correction.
After the Presidential debate next month, geopolitical activity moving into overdrive, and a further deterioration in the employment data during the next sixty days, look for the cries to the Fed to cut rates by 50 bps to increase in the weeks ahead.
A cut which may indeed validate the markets theory that a double top and “the” top is now in leaving the door open for a real bear market to finally reflect the recession America might well have been in for several months now.
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