The U.S. stock markets plunged alongside oil prices and U.S. Treasury yields on Friday, 26th November 2021. This is after South Africa raised the alarm over a fast-spreading strain of the coronavi ...
The U.S. stock markets closed lower on Friday, 22nd October 2021, after the comments from Federal Reserve Chairman Jerome Powell on inflation.
“The risks are clearly now to longer and more persistent bottlenecks, and thus to higher inflation,” Powell said Friday during a virtual panel discussion hosted by the South African Reserve Bank and moderated by Bloomberg’s Francine Lacqua.
“I would say our policy is well-positioned to manage a range of plausible outcomes,” said Powell continues to comment. “I do think it’s time to taper and I don’t think it’s time to raise rates.”
The S&P 500 slid by 0.1% and the Nasdaq 100 retreated by 0.9%. This is after a 7-day rally that erased the selloff in September and made a new record high for the S&P.
Also worth noting is Bitcoin made record highs on the launch of the Bitcoin futures ETF.
The risk-on mode was well into gear continuing from last week, with strong earnings and decent economic indicators.
Here are the closing levels on Friday: –
So, what can we take away from last week’s price action?
For one, we are comfortably away from the correction territory, which was at one point looming over the market.
The market clearly favors the risk-on mode with the backing of recent earnings releases.
Even the rise in the 10-year yields did not scare the bulls away, albeit the Nasdaq did exhibit some concerns, underperforming the S&P.
Although the supply chain disruptions are cause for concern, companies are starting their Christmas shopping early, trying to spread out the sales over a longer period. Plus, customers’ willingness to pay more for products could soften the blow.
Meanwhile, the Feds’ tapering has been telegraphed for some time, and only the timing of rate hikes is up for discussion. As it stands, the Feds are not signaling any changes in that area. So it could be some time away before that happens.
Ultimately, the risks to these theories are obvious if the supply chain disruptions do develop into something more severe.
As inflation continues its not so transitory rise and forces a more hawkish tone from the Fed, it could force the 10-year yields above 1.7% or God forbid even higher.
For now, it’s safe to say the bears are in hiding, and while we may have some volatility, the bulls have the control.
Source: CBOE, Reuters, Bloomberg
This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large US bank for more than 20 years.
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