analysis

⛳Stocks hammered by interest rate fear💰

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After a few months of lower volatility, the equity market dropped sharply on Monday as investors looked for clues on Friday’s Fed gathering in Jackson Hole, Wyo. It might set the stage for Uncle Powell to reinstate his aggressive stance on the rate hike to combat sticky inflation.

The Dow suffered a single day’s most significant percentage drop since June 16. The same follows for S&P 500. Again, never fighting the Fed is the same mantra that ruled the trading day.

🍄Significance of Jackson Hole Gathering🍎

Disappointment might be the norm as markets were quickly factoring few rate hikes. The futures market is now expecting a 55% chance that the Fed will hike the rate by 0.75% in September, rising from 39% a week ago.

Pika World sees the recent softening of the inflation data point as encouraging. Nonetheless, core CPI may remain elevated than the common inflation metrics, which means the Fed may not pivot to a softer stance just yet.

🧸Treasury market took the lead💣

The higher short-term interest rates are now powering the 10-year Treasury yield to move higher. This tends to lead to risk-off sentiment. The yield reached slightly over 3%, a level not seen in a month. This makes cash flow on long-term assets such as stocks less valuable. Moreover, they cap the economic demand, affecting business revenue and profit margin.

💰Dollar strengthens with bonds📈

A logical analysis will take us to the strength of the firmer Dollar. As the US rate rises, investors tend to buy dollars to purchase US bonds. In a relative term, it also punished Euro vs Dollar.

Companies will feel the heat of a stronger dollar as revenues are translated back into smaller dollar terms.

Pika World now expects markets to be tuned in for a hawkish comment by Uncle Powell as the recent equity market rally paused and reversed to a more conservative mode.