Fed Chair Sparks Selloff

February 28, 2018.

The major U.S. stock indexes fell for the first time in 4 days on Tuesday on the heels of the congressional testimony of the new Fed Chair, Jerome Powell, which sent bond yields rising. The new Fed Chair signaled that the central bank is likely to hike rates 4 times this year, one rate hike over and beyond both investors’ forecast and the central bank’s prior forecast of just 3 hikes. Powell conditioned the pace of rate hikes on the strength of the economy and the efforts needed to prevent the economy from overheating and piquing inflation.

Daily Summary: The Dow Jones fell 1.16%, the S&P 500 dropping 1.27% and the NASDAQ slipping 1.27%.

There was nothing surprising in what Powell had to say. In his speech he was neither dead set in favor of hiking rates or adamantly against slowing the pace of new hikes, but his appearance before Congress was a trigger for movement. It doesn’t really matter for computerized algorithms the direction the market charts for itself. Simply put, they’re just looking for movement – and this time it was down.

So, what’s next? The last time we saw a trigger similar to yesterday’s, it led to a collapse of the ETF shorting volatility, creating a breathless market plunge. We could very well see the same thing playing out again, but there’s no way to really know what will happen in practice.

The best assumption at this point is indeed to expect further losses. There’s no immediate technical support level and like we’ve seen already, the market’s tendency over the last month has been to see ongoing, continuous movement – in either direction! The market closed yesterday at its daily low, the candle recorded on the daily chart looking very similar to the one we saw on January 30^th.

Wednesday’s Hot Stocks: ETSY, ELF, ESRX, CELG, AAXN, WTW, PZZA, HTZ, VRX, TJX, LOW

IPOs: None

Have a great trading day!

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