WEEK AHEAD: AUG 23

Short Description

S&P 500 doubles and Jackson Hole...

Video Script

The stock market just doubled off its lows in the fastest time since World War 2. Do you want to know what that means for your stock trading? And do you want to know what the big meeting of central bankers this week in Jackson Hole will mean for your forex trades? Well you’ve come to the right place; this is my preview of the week ahead. Stay right there.

 

So to explain this stat about the stock market that I just threw at you in a bit more detail - the S&P 500 index has just doubled in price since it bottomed in March 2020. That’s a 100% gain for you mathematicians!  What’s fascinating is that it only took just 354 trading days to do it. The next shortest rally recorded was off the lows in 2009 which took 540 days and it has on average taken over 1000 days to do it.

 

So does this mean we in a bubble or can all this be rationally explained? Well one way to rationalise it is earnings - the collective earnings for the S&P 500 companies is up 93% in Q2 this year compared with Q2 last year. Not to mention the massive fiscal and monetary stimulus including $120 billion in QE each month since then.

 

The big question is what next? I mentioned this idea before - but is this as good as it gets? Earnings growth can’t continue at this rate and central banks are preparing to wind down stimulus. The open question is whether more normal earnings growth and a naturally growing economy without support can keep the rally going? These uncertainties alone might be enough for a short term correction in the S&P 500 around the corner.

 

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So in case you’re wondering, Jackson Hole is a beautiful place in Wyoming in the United States and is also the home of the annual meeting of central bankers with the same name. On previous occasions the venue has provided the opportunity for the Federal Reserve Chair to announce a pivot in monetary policy. What we are all looking for this time around of course, if whether Jerome Powell gives a timeline for tapering.

 

The US dollar has strengthened into the meeting but there are different opinions on what the rally means. The dollar could be strengthening because investors expect Fed tapering and eventually higher interest rates - or it could be rallying as a haven over fears about the Delta variant - and that same fear might be enough to dissuade Powell’s Fed from making the decision on tapering too soon.

 

The Jackson Hole Symposium runs for the 26^th through the 28^th so I’d expect any market reaction to come Friday or possibly Monday. Elsewhere on the economic calendar we’ve got come PMIs from Europe. Even if they come out ahead of expectations, I’m not sure that will be enough for EUR/USD which is now trading at its lowest this year. We’ve got the latest Q2 GDP data from the US, but the bigger concern following the soft July retail sales figures is that Q3 won’t be nearly as good. Also keep an eye on consumer sentiment data, which has become more relevant because of emerging signs of concern from consumers about inflation.

 

Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.