Market Notebook

by | Aug 28, 2022

Discussion – 

Equity prices, as measured by ticker SPY, and bond prices, as measured by ticker BND closed lower again last week.

With equity prices closing below the 20-day exponential moving average, equity and bond prices could be considered in a broad consolidation area. The close below the 20-day moving average signals a potential regime change for equities from an upward trend to possible consolidation.

The ongoing bear market in the S&P 500 continues with the rally from the June 17th lows to the August 16th highs looking like a bear market rally.

Market participants appeared highly motivated by Jerome Powell’s comments on Friday regarding Federal Reserve rate policy. Market participants apparently took Chairman Powell’s remarks to mean interest rate policy would remain restrictive for longer than previously thought.

In all reality, Chairman Powell’s remarks signal no change in the Federal Reserve’s stance on inflation. Significant inflationary pressures remain in the real economy, and the Federal Reserve continues to act to reign in those pressures. For insight into the data that might change the Fed governor’s minds regarding inflationary pressures, consider following the Dallas Federal Reserve’s Trimmed Mean PCE data series. Anecdotally, it is likely the single best measure of inflationary pressure in the real economy. July’s reading suggests it is possible inflationary measures have peaked. Even if true, it seems unlikely that such pressures will diminish quickly.

During the coming week and primarily based on technical analysis, the doors remain open for equity and bond purchases within portfolios should purchases be required. Since equities have potentially moved into a consolidation regime, some additional caution is warranted. Be mindful that Friday is jobs Friday, and some further volatility seems likely.

All the best during the week ahead.

Disclaimer: Nothing in this discussion should be considered investment advice. The content of this discussion is strictly my personal opinion and subject to change at a moment’s notice. Investment advice can only be provided to you by your investment professional and not by a general market discussion such as this one. If you wish to speak with an investment advisor, contact us. We can probably help.