What’s “Jackson Hole” and why it matters for the Nasdaq 100?

August 25, 2022

Organised by the Kansas City Fed, this year’s Jackson Hole Economic Policy Symposium will kick off today (August 25th) through August 27th.

This annual event is held in Jackson Hole, Wyoming (hence, the name widely used by market participants to refer to such a pivotal event),which features some of the top officials from major central banks (e.g. US Federal Reserve, European Central Bank, Bank of England, etc.), as they discuss pressing issues that face the global economy.

And there’s no issue more pressing now than the red-hot inflation around the world, which has forced central bankers worldwide into aggressively raising their respective interest rates.

Why “Jackson Hole” matters?

Free Reports:

Get our Weekly Commitment of Traders Reports - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.

Download Our Metatrader 4 Indicators – Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter

What’s said (or sometimes, not said) by these central bankers, especially the Fed Chair, has the potential to move markets.

For example, at the 2021 symposium, Fed Chair Jerome Powell stuck with his “transitory” view on inflation and adopted a relatively “dovish” tone. In other words, he and most of his colleagues at the US central bank thought then that consumer prices won’t keep soaring for long, and didn’t expect to trigger its first hike until 2023.

After last year’s symposium concluded (and on the back of Powell’s dovish and transitory stance), US stocks continued marching higher and notched fresh record highs.

The Nasdaq 100 went on to post an all-time peak above 16,500 back in November.

12 months on, and we’re in an entirely different world.

US inflation is at its highest since the 1980s, and the Fed has hiked by 125 basis points since March, and counting.

The Nasdaq 100 has since plummeted to sub-13,000 levels, and the tech-heavy index is still more than 20% lower so far this year despite its recent summer rally. The drop in stock markets have been predicated on the Fed’s aggressive battle against inflation.

What to look out for tomorrow?

The spotlight will shine greatest on Fed Chair Powell’s speech, scheduled for 2:00 PM GMT tomorrow (Friday, August 26th).

And here’s the biggest question on everyone’s minds: how much higher will the Fed hike US interest rates?

Markets are forecasting a 69% chance that the Fed will press ahead with yet another 75 basis point hike at its September meeting. Those 69% odds are a far cry from the 26% chance priced in at the start of August, hence the drop by as much as 6.3% since mid-August for the Nasdaq 100.
Also, markets expect the Fed Funds Rate to peak out at 3.75% by March 2023, from the current 2.50%. That implies a 75bps hike in September, followed by another 50bps hike, before the Fed then has to start lowering its benchmark rates to start cushioning US economic growth.

With the above narrative in mind, should any of Powell’s comments force markets to rejig such expectations, be it for the size of the September hike or the peak for this ongoing rate hike cycle, that could prompt major moves across a multitude of asset classes.

why focus on the Nasdaq 100?

Notice how the tech-heavy Nasdaq 100 is sensitive to where US interest rates go.

The Nasdaq 100 began diving since the latter parts of 2021, as market began to increasingly expect that the Fed will be forced into hiking interest rates sooner than policymakers had expected.

And sure enough, the Fed triggered its first hike in March 2022, with the Nasdaq 100 falling into a bear market (20% drop from its recent peak) thereafter.

Potential scenarios:

The Nasdaq 100 may be coerced into unwinding more of its summer gains should Powell pave the way for a September 75bps hike and force markets to move their forecasted rate hike cycle peak higher than 3.75%.
Key support levels:

12,605 (100-day simple moving average)
12,395 (23.6% Fibonacci retracement level from its November through June descent)

However, the Nasdaq 100 may be emboldened to extend its summer rally if Powell in his Friday speech pays greater heed to the cracks that are starting to show in the US economy.
After all, US GDP has already met the criteria for a “technical recession”, while the August services PMI showed a larger-than-expected contraction. Such a cautious tone may result in less-hawkish-than-feared commentary tomorrow, potentially translating into gains for riskier assets, including tech stocks.
Key resistance levels:

13,231 – 13,405 (38.2% Fib level and early-August cycle peak)
Around 13,500 (resistance from upper downtrend line from ATH and early-May peaks)
13,730 (mid-August peak)
13,900 (200-day SMA and 50% Fib line)

Judging by how the Nasdaq 100 is attempting to claw its way back above the psychologically-important 13,000 line at the time of writing, it appears that fears over the most-hawkish scenario have been overdone.

Equity bulls will be hoping that Powell will strike a tone that’s less-hawkish-than-feared, which could result in more relief for the Nasdaq 100 and other riskier assets.