Today, Powell delivered a roundtable speech at Spelman College in Atlanta, effectively dousing the market with cold water. He emphasized the dual mandate of the Federal Reserve: achieving full employment and maintaining price stability. On the employment front, the labor market demonstrated strength, with a slight uptick in the unemployment rate in the latter half of the year but still holding at a historic low of 3.9%. Concerning price stability, the long-term target is a 2% inflation rate. Despite the Fed’s measures such as rate hikes and balance sheet reduction to curb inflation, the core inflation rate remains elevated at 3.5%, significantly surpassing the target. Powell underscored that the belief in having implemented sufficiently restrictive policies is premature, and speculating on policy easing is premature. If necessary, they are prepared to further strengthen the policy.
This speech essentially responds to the recent market expectations of interest rate cuts. For Powell, he is indifferent to the rise in bond and stock prices, being more concerned about the resurgence of inflation and the depreciation of the U.S. dollar. Typically, when a country’s interest rates peak and decline, the currency may depreciate, necessitating more dollars to import the same amount of goods, thereby raising prices. Therefore, Powell does not want the financial markets to anticipate interest rate cuts.
However, despite Powell’s statement about continuing a tightening policy, the U.S. stock market rebounded after his speech. Wall Street generally believes that Powell has at least indicated the Fed’s view of ending interest rate hikes. Bloomberg views this speech as the clearest signal from the Fed to date that it has completed interest rate hikes. In summary, if stock prices rise, comments tend to lean towards dovishness. Regardless of what he says to disrupt the market, a rise is considered dovish, and a fall is considered hawkish.
Furthermore, Powell refuted market expectations of interest rate cuts in his speech. The market generally predicts multiple interest rate cuts next year, but Powell’s attitude is not optimistic. He stated that they will continue to adopt a cautious approach and maintain interest rate stability. The next monetary policy meeting is scheduled for December 13, with a high probability of maintaining interest rates unchanged. For the Fed, aside from adjusting interest rates, there is also the tool of Quantitative Tightening (QT). Over the past year, the Fed has been reclaiming $95 billion in maturing bond principal each month, discontinuing further renewals. Recently, there have been voices suggesting an early end to QT, and although this person has limited influence, if a higher-ranking official proposes ending QT in the future, it will continue to be seen as a positive signal.
In terms of economic data, the Manufacturing Purchasing Managers’ Index (PMI) remains at 46.7 for the 13th consecutive month, indicating a significant slowdown in the U.S. economy in the fourth quarter and deepening speculation about a gradually more dovish monetary policy.
In summary, the S&P rose by 8.92% in November, aligning with the decline in bond yields, indicating the market’s bet on future interest rate cuts. It is expected that in December, U.S. stocks will continue to rise, especially with the expectation of a Santa Claus rally. However, from a technical indicator perspective, the KDJ divergence is becoming more pronounced, with the index rising while the KDJ crossover points gradually decline, indicating a clear overbought signal. Although this may lead to a decline in the index due to a top deviation, the repair of technical charts takes time, and overbought signals may persist. The S&P 500 index will encounter significant resistance at 4607 and 4818 points, with a potential continuation of challenging 4607 points next week.
The Nasdaq index $NASDAQ(.IXIC)$ is still in an upward trend, with the historical high of 16212 quite distant. Although reaching historical highs may not happen this year, next year’s monetary policy is expected to boost the market, with stocks remaining on an upward trajectory and short-term pullbacks inevitable.
As for crude oil, WTI experienced a significant decline today, despite OPEC’s production cuts, and the market still holds a pessimistic view of oil prices. Over the past two months, oil price volatility has increased, with traders attributing it to a group of algorithmic trading. CTA algorithmic trading now constitutes 70% of daily crude oil trading. Robots are playing an increasingly significant role in highly speculative futures markets, and the U.S. stock market also has a significant presence of algorithmic trading. Retail investors need to enhance their self-discipline to avoid being harvested by robots.
Finally, in the realm of robotics, it is noteworthy that Dictator, the Polish liquor company, collaborated with Hanson Robotics, a Hong Kong engineering and robotics company, appointing the AI robot Michael as the CEO, making it the world’s first company with an AI CEO. Michael claims to be free from personal biases, capable of working 24 hours a day, and prioritizing the organization’s best interests.
Additionally, the Tesla Cybertruck began delivery today, but users expressed disappointment with the vehicle’s pricing and range. This led to Tesla's $Tesla Motors(TSLA)$ stock price initially declining and then rebounding, resulting in a washout market scenario.
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