The stock market has been in a better position in recent months. The Federal Reserve’s Jackson Hole meeting could keep the good times going.
it has gained 13% since its lowest close of the year in mid-June. That included a pick-up in speed in recent days of trading, with the three major indices now trading below multi-month highs.
The current concern is that the rate of inflation may remain high enough that the Federal Reserve will need to remain hawkish, maintaining the recent pace of rate hikes rather than slowing them. The Fed meets at its annual Jackson Hole Symposium on Friday and the market will be looking for clues on the pace of rate hikes, which are intended to curb inflation by reducing economic demand.
“Investors are discounting what is widely expected to be a hawkish speech from Fed Chairman Powell,” writes Dennis DeBusschere, founder of 22V Research.
Taking a step back, though, the longest summer rally contained some encouraging technical signals for the market. The rally lifted the S&P 500 above several key technical levels, bringing it closer to its 200-day moving average. This is a key level that embeds stock prices at higher levels than months ago, so if stocks are trading at these levels again, it means higher investor confidence. The index reached a level close to this average a few days ago before retreating. The good news: It often takes a few tries for the index to break above its 200-day moving average after it has bottomed, historically speaking, writes Craig Johnson, chief market technician at
And it wasn’t just a few stocks that drove the market to those levels, but the majority of stocks. Lots of stocks participating in a rally means the indexes aren’t dependent on a small basket of names to keep moving higher. The
Invesco S&P 500 Equal Weight exchange-traded fund
(RSP), which equally weights each stock in the index and therefore shows the movement of the average stock, has gained about 12% since its mid-June low.
This is yet another sign that the rally may continue. “The bottom in the market range and the subsequent rally suggest that this is not a bullish market,” writes Johnson.
This is all “technical analysis,” but it suggests that all the stock market needs to continue its rally is a status quo message from the Fed. The summer rally is based on the idea that the Fed will slow the pace of rate hikes, so if the Fed sticks to that message, stocks can move higher.
The Jackson Hole meeting usually drives market gains. The one-month average move in the S&P 500 after the first day of the meeting is a 0.5% gain. Sure, only the month of September usually sees a small drop, but this data may suggest that the market could take a brief jolt from the meeting and then calm down sometime in September.
Write to Jacob Sonenshine at firstname.lastname@example.org