Optimism and commitment to act by the Federal Reserve (Fed) would boost stocks and weigh on the safe-haven dollar while pouring cold water would send stocks tumbling and the greenback to a comeback, Yohay Elam, an analyst at FXStreet, reports.
Stay up to speed with:
- Fed Preview: Nine major banks expectations
-
S&P 500: 98% of stocks above the medium-term ma, correction phase – Credit Suisse
-
S&P 500: Do not chase recent gains, focus on cyclical sectors – Morgan Stanley
Key quotes
“GDP outlooks will be of high interest. Powell and his colleagues may pour cold water on V-shaped recovery hopes by foreseeing full recovery only in late 2021. Will that stop equities? Perhaps it would take a gloomier outlook to depress expectations. Hopes for a near-full-bounce by year-end would boost stocks.”
“Back in April, Powell made an unequivocal commitment to take more action to support the economy, and the Main Street program is one of the ways of fulfilling that pledge. [...] Taking time to digest all the action may weigh on markets while reiterating the vow to act in the same manner would underpin another leg higher in stocks.”
“The Fed remains united against setting negative interest rates. Reporters will likely ask about that, and Powell is set to reject it altogether. In the unlikely case that the Chairman changes his mind, shares may rally. Otherwise, that topic seems to be off the table.”
“Powell is unlikely to state that there is a bubble in equities – nor that he propelled equities higher. He will probably refrain from using the word ‘froth,’ but may say that valuations in some sectors may be elevated, or something along these lines. Any warning shot, as subtle as could be, would trigger a drop in equities while avoiding commenting on markets would allow for further gains.”
“The best scenario for the S&P 500 is that Powell calls on the government to provide further assistance, yet without retreating from his commitment to do more.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD dips below 0.6600 following RBA’s decision
The Australian Dollar registered losses of around 0.42% against the US Dollar on Tuesday, following the RBA's monetary policy decision to keep rates unchanged. However, it was perceived as a dovish decision. As Wednesday's Asian session began, the AUD/USD trades near 0.6591.
EUR/USD edges lower to near 1.0750 after hawkish remarks from a Fed official
EUR/USD extends its losses for the second successive session, trading around 1.0750 during the Asian session on Wednesday. The US Dollar gains ground due to the expectations of the Federal Reserve’s prolonging higher interest rates.
Gold wanes as US Dollar soars, unfazed by lower US yields
Gold price slipped during the North American session, dropping around 0.4% amid a strong US Dollar and falling US Treasury bond yields. A scarce economic docket in the United States would keep investors focused on Federal Reserve officials during the week after last Friday’s US employment report.
FTX files consensus-based plan of reorganization, awaits bankruptcy court approval
FTX has filed a consensus-based plan for its reorganization, coming almost two years after the now defunct FTX filed for Chapter 11 Bankruptcy Protection in the District of Delaware.
Living vicariously through rate cut expectations
U.S. stock indexes made gains on Tuesday as concerns about an overheating U.S. economy ease, particularly with incoming economic reports showing data surprises at their most negative levels since February of last year.