Market Reaction to the Jackson Hole Symposium
The markets always try to predict the future. One of the inputs to the market crystal ball is when anyone from the Federal Reserve speaks. With the yearly Jackson Hole symposium coming up, the market slumped on the open Monday the 22 ndof August. Inflation, higher interest rates, war in Ukraine, looming recession all contribute to the fact that markets across the world are all down but the biggest driver this week is the market reaction to the Jackson Hole Symposium.
Beginning in 1978 the Kansas City Federal Reserve has sponsored a yearly symposium focusing on important economic issues. That symposium has been held in Jackson Hole, Wyoming since 1981. Speakers include prominent central bankers, academics, and players in the financial markets. When these folks give their talks or simply make offhand comments at Jackson Hole markets can dive or soar. In the days running up to the symposium the market appears to be betting on bad news.
Over the years the US Federal Reserve has routinely raised interest rates when inflation emerges. More often than not their efforts have not succeeded without causing increased unemployment and a substantially lowered economy. The concern this time around is that the Fed will cause a recession within the next two years, and probably sooner, as it raises rates and reduces its balance sheet. The market will be watching for who says what in this regard at the symposium. Considering the business slowdown in China, Russia’s unending war in Ukraine, guaranteed recession in Europe, and a US labor market that still needs workers, it is hard to any scenario where the Fed will let up. It is also hard to imagine, baring a huge shift in global events, that the Fed will thread the needle and bring down inflation without a significant economic slowdown and further market losses.
Fed Speak and Options Trading
The folks at the Federal Reserve are famous for parsing their words. This is, in fact, because a single world of phrase from the Fed chair or any of the regional Federal Reserve banks can drive markets up or down in an instant. In options trading we look at both domestic and foreign issues that will drive markets. Our DRINC acronym is for Democrats who tend to overspend, Russia which is invading Ukraine, Iran which will use oil money to fund terrorism, North Korea which is run by a crazy guy with nukes, and China where the leader wants to take over everything and anything that once was part of China or has China in the name, like the South China Sea while first causing and then mismanaging the Covid Crisis. We could add an F to the acronym for the Federal Reserve as well as you cannot fight the Fed when it starts pouring money into the economy to raising rates to counter inflation. Because the 2022 symposium, “Reassessing Constraints on the Economy and Policy,” will run August 25 to 27, any comments late in the day or on Saturday will not affect US markets until Monday when folks have had time to think about them. Comment on Thursday or Friday could well drive prices up down enough to provide trading opportunities.
The Fed’s symposium is not the only thing that could affect the markets. Now is not the best time to be trading options solo. Consider joining one of the trading squadrons at Top Gun Options where we potentially print money no matter what Fed Chair Powell says or how the market reacts.