All eyes are on the main event taking place tonight at 21:00:
The testimony of Fed Chair Powell.
What are investors expecting?
For several weeks, we have been experiencing high volatility in the markets due to several events:
1) Worsening relations between Russia and Ukraine.
2) A turbulent earnings season.
3) Omicron and the global supply chain crisis.
4) A rise in the 10-year US bond yield.
But most importantly, the high volatility we have experienced in the markets in recent days occurred due to concerns about a change in current monetary policy tonight.
So what can the Fed chair tell investors?
There are several possibilities:
1) The first interest rate hike will come as expected in March, with no change.
2) Postponing the interest rate hike to later than expected.
3) Bringing forward the interest rate hike to earlier than expected, which would lead to 4 or more hikes in the coming year.
Investors' expectation is -
that interest rates will remain unchanged and that no further tapering will occur.
Given the increases in the 10-year US bond yield -
logic suggests that Powell will try to calm the markets, and even in an extreme scenario, postpone the interest rate hike.
Every word from the Fed chair will be crucial for the market's direction.
And no less important: any statement interpreted as indicating some inflationary relief will bring a sense of certainty and with it, a market recovery in the near term.
If Powell's statement tonight does not provide a clear enough picture -
the sense of uncertainty will remain with us, and the indices may react accordingly.
Technically: any drop to the 13,720 level on the Nasdaq-100, or to the 4,220 level on the S&P500 -
will be a bad sign in the short term and could lead to further declines.
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