Ahead of the annual economic symposium in Jackson Hole, Wyoming, markets have enjoyed a nice rally over the past two weeks. DJIA, S&P 500 and NASDAQ all bounced off support (green dashed line) in early August and have all blown through resistance (red dashed line) recently. S&P 500 closed at a new all-time high today, NASDAQ at a new recovery high and DJIA is about 100 points from its previous high close back in mid-July.
With Fed Chairwoman Yellen scheduled to give the keynote speech tomorrow morning the question everyone is looking for an answer to is; when will the Fed begin to raise interest rates? I am going to guess later, rather than sooner. Why? Because the headline topic for this year’s Jackson Hole symposium is “Re-Evaluating Labor Market Dynamics.” I expect Chairwoman Yellen will attempt to deliver a speech that somehow says the labor market in the U.S. is improving and a positive trend is firmly in place while at the same time offering supportive information that it is still quite sick and in need of continued central bank support. It is the classic two-handed economist argument.
As for tomorrow’s trading, the day that the Fed Chair speaks has had quite a bullish history from 2007 to 2012 (Ben Bernanke skipped last year) with the S&P 500 averaging 1.3% on the day. However, in those years the market was not nearly as strong as it is this year. Having “bought the rumor” this year, it would not be surprising to see traders “sell the news” tomorrow.
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