Fundamental Data Come First

I begin every MTM Monday Morning Meeting the same way. First, a recap of market moving events from the previous weeks are noted. Then we move on to the reports scheduled for the week ahead. Fundamental data come first because they are the most powerful force for moving markets. Pro traders always look ahead and learn from the past. The past gives us reference points (in charts) where fundamentals accelerate or change a trend.

The most significant event this week was Chair Powell’s speech at the Jackson Hole Economic Symposium.  There were some violent vertical moves in many sectors when the Fed Chief revealed monetary policy. The Fed will remain accommodative so struggling Americans can survive and eventually thrive through the pandemic. The Federal Open Market Committee (FOMC) intends to keep interest rates low and pump more money into the economy. They will not raise rates even if inflation accelerates rapidly. Normally, they are quick to raise interest rates when inflation numbers run hot. Those numbers are at historic lows currently. This approach differs from their traditional mandate, which is to promote full employment and keep inflation in check.

The promise that the Fed will not raise rates even if prices on goods increase at a rapid pace is puzzling. The facts are that equities took this news well and interest rate products did not. Precious metal, energy and currency market traders appear confused. These sectors moved sharply higher and lower following Powell’s speech. To put it bluntly, confusion reigns.

The takeaway is that stocks are likely to continue to probe higher or sideways, so buying dips or bullish option spreads should pay. On the other hand, short strategies for interest rate sensitive stocks and ETFs ought to work heading into Q4.

John Seguin, Market Taker Mentoring

Trader Education