US stocks are laser-focused on what the Fed’s speed of interest rate policy change is going to be. Surging inflation has been a big fear of the Fed and Jerome Powell reminded markets at the last FOMC meeting that interest rates may need to go higher than he had previously indicated. So, Powell’s speech at 18:30 UK time will be crucial for the next direction in stocks.
If Powell indicates a pivot may be ahead, and that the Fed is looking to pause rates that will most likely give US stocks a big push higher. However, the speech must also be read in light of the US CORE PCE data which will be released on Thursday. A big beat there and a hawkish Powell would send stocks lower, and not higher.
The S&P 500 has some great seasonals ahead. During midterm election years, the S&P500 has gained 15 times in December over the last 72 years.
So, the best scenarios for more S&P 500 upside would be a dovish Powell and a US CORE PCE reading coming in below 4.6% y/y for the core and below 5.9% for the Price index then it is reasonable to expect S&P500 buying.
Major trade risks: The major trade risk here is that the Fed keeps hiking aggressively, US inflation keeps rising and that will be a headwind for the S&P 500 into the last Fed meeting of the year on December 14.
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