The S&P 500 is sitting around the same level it was at following a big jump on November 10 due to a softer-than-expected CPI report. There have been a few upward spikes since then, but the indexes have been churning for about three weeks now and have been in a trading range as they deal with Covid in China and mixed economic news.
That is the technical setup this morning as we await a slew of economic news followed by a speech by Fed Chair Jerome Powell at 1.30 pm ET.
Prior to the open will see ADP employment numbers, PCE Core inflation, GDP, Retail Inventories, and Personal Consumption. At 10 am ET, we will be hit with home sales, job openings, and Chicago PMI.
There really is only one question that matters as we consider this data: does it impact the level of the Fed's hawkishness? There currently is about an 80% chance that the Fed will hike rates by 0.5% at its meeting in December, but various Fed members have sent clear messages that rates are likely to go higher for longer in order to control inflation.
Powell will be the key to the market action today. The last three times he spoke, there were significant negative reactions. The market keeps hoping for some signal that he will relent in his hawkish tone, but he has not softened his stance at all.
The message following the last Fed interest rate decision was that the Fed might slow the pace of hikes as it considers whether prior hikes are working, but there are still a series of hikes coming, and we are far from done with the battle against inflation.
Powell is very likely to repeat that message again today. Market players have been badly burned several times when they have anticipated some softness in his stance, and they are less likely to make that mistake again.
The risk that Powell is going to surprise the market with aggressive hawkish is not as high as it previously was, but can the market manage to rally if he simply repeats the message that the battle against inflation continues and is far from over?
Be ready for some volatility. The bulls are very anxious for some end-of-the-year strength, and the technical setup for a bounce is not bad. But if the Market is counting on something positive from Powell, then there is a high risk it will be disappointed.