Search Mark
Home / Expert Opinion

Pivot Expectation & Potential Recession

U.S. stocks fell into a hole on Friday, 26th August 2022— Jackson Hole to be precise. 

Last week, we heard from a few Fed officials calling for higher rates to fight inflation. 

While the market was expecting some kind of follow through on these comments, they were not prepared for the hawkish stance taken by Chairman Jerome Powell. Here is the link to his speech. 

In short, he said clearly that rates would likely stay high for some time, dismissing the expectation that the Fed will pivot, i.e. reduce rates soon after reaching its peak. 

This pivot expectation, along with some strong corporate earnings were the cause of the recent rally in stocks we saw a few weeks ago. 

Now, we have the Fed potentially doing more jumbo hikes to “do what it takes to bring inflation down”.  

Futures were pricing the odds, for a 50-basis point hike, equal to a 75-basis point hike.  

Also, the chances of them lowering rates next year are now looking unlikely, unless inflation comes down dramatically. 

What is most worrying is that the Fed is aware that in order to fight inflation, they might bring on a recession rather than a soft landing everyone was hoping for. 

All 3 major indices, the Dow, S&P, and Nasdaq fell over 3 % with the Nasdaq 100 falling more than 4%.  

Here are the closing levels on Friday, 26th August 2022:. 

 Last Change %Change 
Dow Jones 32,283.40. -1,008.38. -3.03% 
S&P 500 4,057.66. -141.46. -3.37% 
Nasdaq Comp 12,141.71. -497.56. -3.94% 
U.S. 10Y 3.04%   
VIX 25.56 +3.78 +17.36% 

The market is finally waking up to the reality that inflation is high and stubborn. It is unlikely to fall quick enough in the near term to make the Federal Reserve go dovish. 

Rates may have to stay high for a long time before the inflation target of 2% is achieved. 

This will potentially bring the economy into a recession and affect corporate earnings and their stock prices will have to reflect that. 

While corporate earnings were able to do well recently, it is hard to imagine it continuing to do well with higher for longer rates. 

The selloff opened some wounds in the technical picture with prices below the 100-day moving averages. Some support levels were taken out and the odds are, that more will be taken out in the next few days. 

I am sure there is still a lot of money out there looking for bargains and we might see the odd rally here and there. But, it’s hard to see any kind of sustained bull run in the near future. 

Like I said last week, caution is advised. 

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. 

Risk Disclosure   
Trading in financial instruments involves high risks due to the fluctuation in the value and prices of the underlying financial instruments. Due to the adverse and unpredictable market movements, large losses exceeding the investor’s initial investment could incur within a short period of time. The past performance of a financial instrument is not an indication of its future performance.  Investments in certain services should be made on margin or leverage, where relatively small movements in trading prices may have a disproportionately large impact on the client’s investment and the client should therefore be prepared to suffer significant losses when using such trading facilities.   

Please make sure you read and fully understand the trading risks of the respective financial instrument before engaging in any transaction with Doo Prime’s trading platforms. You should seek independent professional advice if you do not understand any of the risks disclosed by us herein or any risk associated with the trade and investment of financial instruments. Please refer to Doo Prime’s Client Agreement and Risk Disclosure Statement to find out more. 

This information is addressed to the general public solely for information purposes and should not be taken as investment advice, recommendation, offer, or solicitation to buy or sell any financial instrument. The information displayed herein has been prepared without any reference or consideration to any particular recipient’s investment objectives or financial situation. Any references to the past performance of a financial instrument, index, or a packaged investment product shall not be taken as a reliable indicator of its future performance. Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners, and their respective employees, as well as managers, make no representation or warranties to the information displayed and Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners and their respective employees, as well as managers, shall not be liable for any direct, indirect, special or consequential loss or damages incurred a result of any inaccuracies or incompleteness of the information provided. Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners, and their respective employees, as well as managers, shall not be liable for any direct, indirect, special, or consequential loss or damages incurred as a result of any direct or indirect trading risks, profit, or loss arising from any individual’s or client’s investment. 

Share to

Expert Opinion

Market Retreat On Rising Geopolitical Tensions And Bank Earnings

The stock market closed lower, marking its worst week since October 2023 due to poor earnings from banks like JPMorgan Chase and rising Middle East tensions.

2024-4-15 | Expert Opinion

Stock Market Finish Positive Amid Economic Optimism 

The stock market ended the week positively after a strong jobs report, indicating sustained strength in the U.S. economy despite potential rate hikes

2024-4-8 | Expert Opinion

Wall Street's Optimism Amidst Fed’s Stance And Inflation Data 

Wall Street signals cautious optimism, despite ongoing economic shifts. Calls for interest rate cuts persist, yet the Fed's maintain a steady stance,

2024-4-2 | Expert Opinion