U.S. stocks closed lower on Friday, 19th August 2022, breaking a four week winning streak after Fed officials commented on the need to raise rates.
St Louis’s James Bullard called for another 75-basis point hike. In an interview, he said he favored going big again, so as to put significant downward pressure on inflation.
Kansas City’s Ester George also called for more hikes, but she was less hawkish than Bullard.
Then on Friday, Federal Reserve Bank of Richmond President, Thomas Barkin said the central bank was resolved to curb red-hot inflation, even if that meant risking a U.S. economic recession.
“We’re committed to returning inflation to our 2% target and we’ll do what it takes to get there,” Barkin said on Friday during an event in Ocean City, Maryland.
Most notably the U.S. 10-year yield rallied to close at 2.97%, which put pressure on tech stocks.
The Expiration of $2 trillion in options on Friday may have also caused some downside pressure to the markets, pushing the VIX above 20 especially since the S&P failed to break a key resistance at 4300.
For the week, the S&P 500 fell 1.2% and the Dow Jones average ticked 0.2% lower while the Nasdaq Composite slid 2.6%.
Here are the closing levels on Friday, 19th August 2022:-
The fall in markets should not have come as a surprise as I mentioned at the end of my last commentary.
The markets looked a little stretched and short sellers came out while some longs decided to book some profits after a huge run-up in prices recently.
Will this be a turning point or just a pause from the recent rally?
The retail army got burnt with Bed Bath & Beyond tumbling 40% after Ryan Cohen sold his entire stake.
You can also link the fall in Bitcoin and crypto-linked stocks to the added pain to the retail investors. Not sure how much more pain can they take.
The market is now focusing on the fact that the Feds are not done tightening.
With Jackson hole next week, comments from Fed officials will probably confirm that they are committed to bringing inflation down and therefore too premature to call for a halt or slowdown in hiking rates.
If we do not rebound from this selloff, chances are there is more downside to come.
We need some positive market news to prevent this, otherwise, more will be tempted to book profits and stay on the side-lines until the next bull run.
Advise caution for next week.
Source: CBOE, 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 U.S. bank for more than 20 years.
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