S&P 500; US Indexes Fundamental Daily Forecast – Thin Volume May Lead to Volatile Reaction to Jackson Hole Speeches

The major U.S. equity indexes continued to tread water on Thursday as investors awaited Friday’s keynote speeches by Fed Chair Janet Yellen and ECB President Mario Draghi at the Jackson Hole central bankers’ symposium at Jackson Hole, Wyoming.

In the cash market, the benchmark S&P 500 Index finished at 2438.97, down 5.07 or -0.21%. The blue chip Dow Jones Industrial Average settled at 21783.40, down 28.69 or -0.13% and the tech-based NASDAQ Composite closed at 6273.12, down 5.29 or -0.08%.

Retail stock traders took advantage of the thin trading conditions, driving the SPDR S&P Retail exchange-traded fund (XRT) up 0.9 percent. The sector was supported by strong gains in Abercrombie & Fitch, PVH Corp., Williams-Sonoma and Perry Ellis. Grocery giant Kroger declined 7.7 percent on the news that Amazon would instantly launch discounts for shoppers in Whole Foods once the deal to buy the food retailer closes on Monday.

In other news, U.S. Weekly Unemployment Claims came in at 234K, slightly below the 237K estimate, and a little higher than last week’s figure.

Existing Home Sales unexpectedly fell in July to their lowest monthly level of the year due to a lack of properties for sale, which also continued to push up prices.

The National Association of Realtors said on Thursday existing home sales fell 1.3 percent to a seasonally adjusted annual rate of 5.44 million units last month. June’s sales pace was revised slightly lower to 5.51 million units.

Economists were predicting a rise of 0.9 percent to a rate of 5.57 million units. Sales were up 2.1 percent from July 2016. Supply was down 9.0 percent from a year ago. Housing inventory has declined for 26 consecutive months on a year-on-year basis.

Kansas City Fed President Esther George told CNBC on Thursday that the economy was strong enough to handle more rate hikes, despite recent readings of weak inflation.

“I think we should continue with the gradual rate path,” George said from Jackson Hole. “While we haven’t hit 2 percent, I’m reminded that 2 percent is a target over the long term, and in the context of a growing economy, of jobs being added, I don’t think it’s an issue that we should be particularly concerned about unless we see something change.”

Forecast

At Jackson Hole on Friday, most investors don’t anticipate any major statements on increasing interest rates from Yellen or Draghi. Yellen is scheduled to speak at 1600 GMT and Draghi at 1900 GMT.

Speaking late in the session on Friday leaves very little time for investors to react to anything the two central bankers say. Because of the thin trading conditions, any moves are likely to be exaggerated also.

Going into the speeches, market expectations for a rate hike in December are just 37.6 percent, according to the CME Group’s FedWatch tool. This is actually bullish for stocks.

Unless Yellen or Draghi say something important pertaining to policy, I don’t expect much of a reaction in the stock markets. We could, however, have some wild swings because of thin trading conditions.