Market participants were expecting a volatile day, but it played out much differently than anyone expected.
It was widely anticipated that there would be a strong response to Fed Chair Jerome Powell's comments, when he spoke about monetary policy Friday at a conference in Jackson Hole.
Powell offered little new but made it clear the Fed remained ready to act depending on incoming data. There is likely to be a quarter-point cut next month. However, after that, it becomes a bit uncertain. Stocks were inching higher on the benign speech and even ignored a President Trump tweet complaining about the unhelpful Fed. Stocks had managed to recover to positive territory before Trump dropped the hammer and the market collapsed.
Powell was quickly forgotten when Trump threw a Twitter tantrum in response to retaliation by China to the trade war. The Chinese purposely timed their response to occur in front of Powell's speech to create as much market disruption as possible and this triggered the ire of Trump.
Trump stated that he is prepared for further retaliation and demanded that U.S. business be ready to leave China. It is unclear what exactly is going to happen but there is a likelihood now that the negotiations will be completely abandoned. In any event, there is not going to be a deal any time soon.
There is no news yet of what action Trump may take and that helped to continue the selling into the Friday close. The major indices ended near their lows of the day and suffered large losses on horrendous breadth.
The S&P 500 has been lurking around the top of a trading range for most of the week but the selling Friday took things down near support, which is at 2825. The lows of August were not breached but they are in play for next week. This sort of setup often leads to a breach of the lows which triggers stops and panic and then a reversal back up.
One issue that was lost in the shuffle today is that Powell and his cohorts have made it clear that they are ready with dovish action should the trade war with China take a toll on the economy. Right now the whole situation is a mess so that is not very comforting but you can bet we will hear talk about a half-percent rate cut if there isn't any improvement in the situation with China very fast.
The market is in a precarious position here and the support is weak but the Fed is still a source of support and Trump tends to be very sensitive to weak market action. It sets up for some interesting action next week as market players try to sort out the various issues.
Have a great weekend. I'll see you on Monday.