Yellen for Powell, Business Activity Declines, 200 Days Growth

Last week we wrote that, as a rule, after a 100% rise in the US stock market, a fairly deep correction follows. Another purely statistical signal in favor of a correction was the overcoming of the 200-day growth mark without a correction of at least 5%. In the entire history of the SP500, this has happened only 8 times.

Recall that the results of the virtual symposium in Jackson Hole, which will be held at the end of the week, may well become a trigger for the start of a correction, because all the necessary fundamental and technical base is already present - only a push is needed.

By the way, about the fundamental base. Yesterday was published data on business activity in Europe and the United States. The data for July came out worse than the estimates of the previous month and below the forecasts. Another reminder to the markets that the peak of the economic recovery has passed and there is a rather unpleasant (in the light of pandemic figures) uncertainty ahead.

But who is looking for a positive, he will find it. Markets opted to ignore the economic data and focused on news that the FDA has granted Pfizer and BioNTech full approval for their Covid-19 vaccine. In theory, the move could motivate some unvaccinated Americans to get vaccinated, as well as instill more confidence in private businesses across the country to meet vaccination requirements. China, on the other hand, reported zero transmission of COVID-19 among the country's population.

And finally, the head of the US Treasury, Jannet Yellen, supported Powell's candidacy for a second term as head of the Fed. Powell at the head of the Fed is perceived by the markets as a signal that a sharp tightening of monetary policy in the foreseeable future should not be expected. And, indeed, in recent months he has been the ultimate "dove" in his assessments and comments.

In general, summing up yesterday's positive, it is obvious that this was only a reason, and a formal one, for growth. Accordingly, we see no reason to change our “sell” position on risky assets, especially in the run-up to Jackson Hole.