The surge in stocks yesterday came after Fed chair Powell’s speech, in which he finally relented on the more aggressive stance that he held at Jackson Hole in August and also at last month’s FOMC meeting press conference. These two phrases are enough to sum up why markets reacted in the way they did:
- It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down
- The time for moderating the pace of rate increases may come as soon as the December meeting
Powell may have still insisted that “we will stay the course until the job is done” and that “the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level”.
However, the focus point yesterday was the change in stance by the Fed chair and not the insistence that they are still going to fight the good fight in the inflation battle – something which he has affirmed before.
That resulted in a big nod for equities, with the S&P 500 rising by over 3% and closing above its 200-day moving average for the first time since April:
There is still key trendline resistance (white line) around 4,086 in play but if we do see a push back above 4,100, there is little to stop a further rally towards the August high at 4,325 next for stocks.
It will now come down to the key risk events left for the remainder of the year to really determine the mood and trading sentiment, in vindicating what we are seeing with the charts right now – both for stocks and also the dollar as highlighted here.