What follows is an excerpt from this weekend's 286th Edition of Zenolytics Turning Points.
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I want to start by revisiting the framework for this rally I discussed in the 283rd edition of Turning Points on July 31st.
We are now at the halfway point for August. If you will recall, I had August as being a nearly vertical ascent, with the ultimate target for the S&P being 4400.
As we are at the halfway point of August, the S&P is almost exactly at the halfway point of meeting that target. The vertical ascent I expected has taken more of a violent path, where threats of a lower market cause investors to panic instantly, followed by big gaps up that cause those same investors to miss the next move.
In any case, we are on track for 4400 as we move into the final two weeks of trading for August.
Future expectations for the remainder of this month have to be constructed around the Jackson Hole meeting. This will be the equivalent of the Powell presser following the Fed decision in terms of overall influence on the market and short-term direction following Powell's comments.
As a refresher, while Fed governors must play the role of good cops against inflation, remaining vigilant and steadfast in the face of rising prices, Powell must play to the political establishment, especially as elections are nearing.
This means that his soldiers (good inflation cops) go out and do the dirty work of scaring the markets, while Powell (bad inflation cop) himself strikes a much more dovish tone to offset their hawkishness, creating the proper balance for the markets, while alleviating the worries of the political establishment who are concerned that he will tank the economy and the markets right into election day, costing them their jobs and control of government.
If we expect Powell to be a bullish force for the markets on August 25th – August 27th , then we must also attempt to figure out how the market will do the most obvious thing (go up) in the least obvious way leading up to Jackson Hole.
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