Why are markets rallying? Probably for two reasons. They have been rallying already on both bad and good news, so there is continued upward momentum. Markets will do what they want. The time has not come for the next downward trend leg to begin it would seem. It may be very close however. 4200-4300 is major major resistance, as well as gamma resistance.
Gamma hedging flows by options dealers is another reason for the rally, according to experts on options hedging flows and gamma levels.
But because so much options volume has been short-dated, that rally booster may not be long lasting or available for much longer. OPEX is on February 17.
Here is a summary of some of the main points from Fed Chair Powell's speech today at the Economic Club in Washington DC. Some of the points below are quotations and paraphrases by a key Fed analyst, Nick Timiraos:
Main Points
1. Powell did not push back on financial conditions easing. This was similar to his response at the FOMC presser on February 1, 2023.
2. Powell sticks to the script, however. More rate hikes are coming. The process is taking longer than anyone anticipated
3. Nick Timiraos: “Fed Chair Powell said labor markets’ surprising strength shows why the Fed thinks it will face a longer battle to bring inflation down than many investors have been anticipating.”
Powell noted that the labor market remains extraordinarily strong. Last week’s NFP report “showed hiring accelerated in January 2023 (517K jobs added, 3.4% UE rate) and this was certainly strong—stronger than anyone expected,” said Powell. He added, “It kind of shows why we think this will be a process that takes a significant period of time.”
4. Timiraos paraphrased Powell’s points about inflation as follows: “Despite many people believing (hoping) the Fed’s recent inflation projections were too high because inflation would come down faster, the Fed didn’t see it that way, and given last week’s jobs report, still doesn’t.” Powell then said “We are going to react to the data so if we continue to get, for example, strong labor market reports, or higher inflation reports, it may well be the case that we have to do more and raise rates more than has been priced in.”
5. Powell said the 2% inflation target is not going to change. The interviewer asked again, and Powell without hesitation confirmed again, “Not going to change, no.”