Jackson Hole Symposium event is coming up this weekend and FED chair Powell is expected to be hawkish according to many analyst and fund managers. The reason for this stance include Powell stating that inflation was transitory during last year's sympoium and have to rectifiy his mistake by providing solutions, inflation is now still at 8.5% which is alot higher than the FED's target of 2% etc.
Why is the market up ?
I believe there are many reasons on why the market is up. But in this post i will discuss 2 reasons.
First is the media's narrative whereby analyst believes that Powell is going to give a timeline for pivot in the future hence the market is currently pricing in good news + student loan forgiveness was passed which can help boost economy spending as lesser money would be tied up.
Second is my own theory :
The market movement to the upside is not making any sense to me, especially leading up to Jackson Hole symposium. The VIX index which measures future market volatility by calculting option contracts is down 8.35% in the past 2 days but was up 21% from 18/8 - 22/8. The drop in VIX also does not make sense to me because the reason for the rise in VIX from 18/8 - 22/8 was due to the fear of bad news from Jackson Hole Symposium, but now the drop in VIX and the rise in SP500 is due to a possibility that Powell is going to give a timeline for pivot in the future. In my opinion, big money would have had thought of all of these possibility in the first place and might have trimmed their exposure in the market during that period ( BofA analsyt stated this as well ), which is why the amount of option contarcts required to hedge have decreased hence VIX index is showing less volatility. In addition, i believe that the current market upside will be shortlived as big money will trim even more position or short the market hours before the symposium ends, because it is impossiblefor hedge funds to not trim their position during an obvious volatile and uncertain period.
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