On Friday, the Fed's Jackson Hole symposium stimulated the market, with all 4 major indices closing positive. Due to the improvement in the economy, the Fed feels more comfortable with tapering monetary policy possibly near the end of 2021. This means the Fed would begin to reduce the $120 billion monthly bond-buying program. Additionally, the Fed will continue to keep interest rates low as it looks for further growth in the jobs market. In terms of the COVID-19 delta variant, the Fed believes that while, it could hinder short-term growth, the long-term recovery is still intact.
With that said, one controversial matter the Fed has stuck to its guns on is that inflation is only transitory. Transitory inflation could stem from their view that supply-chain disruptions are under pressure from a surge in demand and will naturally adjust with time. It could also be that the Fed does not account for Food and Energy when looking at inflation numbers.
However, inflation can become very complex when the U.S relies on a vast number of imports while we continue to see shortages, stalling not only in the auto and tech industry, but also the retail space while stores struggle to keep inventory. On top of that, the current administration continues to push multi-trillion-dollar bills and budget resolutions. While more spending comes with positive intentions of helping social safety policy and furthering an economic recovery, many are worried about where the money will come from, and its effect on inflation and the dollar.
On Friday, both gold and the dollar made decent moves, with Invesco DB Us Dollar Index (UUP) selling off while SPDR Gold Shares (GLD) rose 1.4%, clearing over its 200-DMA at 169.68. On the other hand, the market is taking a higher note, with the major indices including the S&P 500 (SPY) and Nasdaq 100 (QQQ) clearing all-time highs. Additionally, the small-cap Russell 2000 index (IWM) has finally cleared a major resistance level of $225. With a strong close at $226.37, IWM now can run towards highs at $234.
Therefore, while the short-term market looks strong, enjoy the run. Nonetheless, we should keep inflation in mind, as it has yet to be dealt with or even fully acknowledged.
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- S&P 500 (SPY): New highs.
- Russell 2000 (IWM): Needs to hold over 225 as new support.
- Dow (DIA): 356.60 high to clear.
- Nasdaq (QQQ): New highs.
- KRE (Regional Banks): 67.22 recent high to clear.
- SMH (Semiconductors): 271.79 cleared. Watching to hold over 272.
- IYT (Transportation): Needs a second close over the 50-DMA at 255.76 to confirm a phase change.
- IBB (Biotechnology): Doji day. 164.27 support.
- XRT (Retail): Needs to get over 97 and hold.
Assistant Director of Trading Research and Education