1. Moving the markets

The markets tried to shake off their August blues by betting on bad news. The Labor Market showed signs of a slowdown, with fewer job openings and lower revisions. The US Macro Data index also dropped for eight days in a row.

Some analysts feared a hard landing recession, but Wall Street traders saw a silver lining: the Fed might cut interest rates sooner and more aggressively. The hopes for lower rates were boosted by falling bond yields and weak Consumer Sentiment data. The market expectations for Fed rate changes reversed course and ignored Powell’s hawkish stance.

The rally was also fueled by a short squeeze, as the bears had to cover their positions. Nvidia soared above its pre-earnings highs before losing some steam. The dollar took a dive and posted its biggest loss since mid-July. Gold shone and jumped almost 1%.

I think the market volatility in August is not over yet, and I expect more swings in September as the market adjusts to a slower economy. The Fed’s past rate hikes have taken their toll on the economy, especially on the housing market, which faces higher mortgage rates.

1. Moving the markets

The markets shrugged off Powell’s hawkish speech at Jackson Hole and rallied on Monday, boosted by a massive buy-program in the final hour. Powell reiterated that the Fed is ready to raise rates further if needed, but also said that it would be careful, and data driven.

Lagarde, the ECB chief, echoed her cautious tone and did not hint at any imminent rate hike. Traders are now looking ahead to some key economic indicators later this week, such as the PCE inflation index on Thursday and the non-farm payroll report on Friday.

These data points could influence the Fed’s decision on when to start tapering its bond purchases and raising interest rates. The market action on Monday was also driven by a short squeeze in some stocks, such as Nvidia, which recovered from an early drop.

Bond yields were mixed, with the 2-year yield briefly topping 5.1% before settling above 5%. The dollar was flat, while gold rose to a 3-week high. The volatility is likely to continue as traders brace for more news on the economy and monetary policy.

1. Moving the markets

Nvidia’s stellar earnings and revenues were not enough to impress the markets today, as the tech giant saw its shares end the session unchanged. This was a classic case of “buy the rumor, sell the fact,” a well-known adage that describes how investors often anticipate good news and then cash out when it is confirmed.

The tech sector in general faced mixed views from traders, with some remaining optimistic and others wary of rising yields. Higher yields tend to hurt valuations and affect more richly valued stocks negatively.

Meanwhile, the economy showed signs of weakness, contrary to the hopeful outlook of some. Retail was hit hard yesterday, and today we learned that Durable Goods orders plunged by the most since the Covid lockdowns. This means that demand for long-lasting items such as cars, appliances, and machinery was very low.

Another sign of trouble was Dollar Tree’s fall after a disappointing earnings report on rising “shrink.” Shrink is a term that refers to inventory loss due to shoplifting or employee theft. Many other retailers like Dick’s Sporting Goods, Foot Locker, Target, Lowe’s, and Walmart have also warned that shrink is getting out of hand at their stores, putting pressure on their margins.

Almost all sectors, except banks, ended the session in the red. As I posted before, this year’s rally has been driven by a few stocks with the breadth, especially on the Nasdaq, being the worst it’s ever been, as this chart shows.

Bond yields resumed their upward trend with the 2-year reaching 5% again. That sent the dollar higher partly due to fears of what the Fed chair might say tomorrow after the conclusion of the Jackson Hole symposium.

Will he sound hawkish or dovish? That is the question that keeps investors on edge.