Money Flow – Chaotic action before Powell’s speech at 8:30 p.m

Action was choppy on Tuesday as investors await key economic news on Wednesday and a speech by Fed Chairman Jerome Powell at 8:30 p.m. At the same time, it is the end of the month where there is usually a rebalancing of the portfolios, showing in most cases illogical movements in the markets.

The bullish optimism turned out to be a trap ahead of Powell’s previous speech, and investors don’t seem to have forgotten it. There was reluctance to add long exposure, but there was no rush for the exits.  Small-cap stocks and related with China stocks performing well, while large-cap tech names and Apple in particular were weak.

On the plus side, there wasn’t another big jump ahead of the news, as we’ve seen several times this year, but there’s still quite a bit of bullishness about a friendlier Fed that may not be warranted. To a large extent, expectations for a more dovish Fed have been priced in by the market, but what is still being ignored is the fact that hikes are not stopping, they are just going to be slower. This will continue to hurt the economy and we will likely see a decline in corporate profits next year.

The risk of a hawkish comment from Powell remains quite high. The positioning is likely to continue until the first data at 15:15 from the US on ADP Nonfarm Employment Change followed by GDP, JOLTs Job Openings, Pending Home Sales, Crude Oil Inventories. High volatility is expected today and it is good to wait for all the data to come out and Powell’s speech to finish before taking a position as sentiment can change very quickly.