Powell’s Words Ignite Market Volatility

During the overnight session, the S&P 500 futures remained relatively stable, trading sideways above the zone created by the 21-Day Exponential Moving Average (EMA) and the 15-Day Simple Moving Average (SMA). With Federal Reserve (Fed) Chairman Jerome Powell scheduled to speak shortly after the market opening, large overnight moves are less likely. In such cases, the futures tend to stay close to the mean heading into a significant event. This is because the market prefers to remain neutral before a looming catalyst, allowing it to move freely in either direction as necessary. As such, the market appears to be biding its time, poised for potential changes in either direction depending on Powell’s remarks.

Market Awaits Powell Before Dropping Strongly

Thirty minutes before Federal Reserve Chairman Jerome Powell’s scheduled testimony before the Senate, the market remained choppy and moved sideways. Implied volatility also increased as market participants anticipated the upcoming event at 10 a.m. Eastern time. Once Powell began speaking, the market reacted quickly, with his comments sending it lower in an aggressive manner.

One significant statement was that interest rates would likely be higher than previously anticipated. Powell also noted that inflation has not decreased as quickly as the Fed had hoped, and there is still a long way to go. As a result, the market priced in a 50 basis point rate hike for the upcoming Federal Open Market Committee (FOMC) meeting.

Although there was initially an aggressive downward move in the indices, a cover pop followed, bringing the S&P 500 futures back to the line in the sand zone. However, the market was quickly rejected upon retesting this zone, indicating that sellers were in control of the market. As a result, the market now resides on the underside of the 21-Day EMA, highlighting the strength of the sellers.

Throughout the rest of the cash session, the market continued to show a shift in sentiment toward the negative following Powell’s comments. There were several traps and sharp upward moves throughout the market, which ultimately moved lower toward the end of the trading day.

Economic Events for Tomorrow, and Powell Again

Tomorrow, at 10 a.m. Eastern, Jerome Powell is scheduled to testify before the House. While it is unlikely that Powell will make any significant pivots in his comments, there is a question of whether repetitive statements will yield the same reaction from the market.

In addition to Jerome Powell’s testimony, there are several other key events to keep an eye on throughout Wednesday. At 8:15 a.m., the Automatic Data Processing (ADP) national employment report will be released. The Job Openings and Labor Turnover Survey (JOLTS) will also be released during Powell’s testimony. Later in the afternoon, the Beige Book will be announced at 2 p.m. Eastern. 

Targets for Either Direction Tomorrow 

The critical levels on the chart remain unchanged. Presently, the S&P is situated below the 50-Day Simple Moving Average (SMA) and the psychological level of 4,000. If the market moves above this zone, a retest of the 21-Day Exponential Moving Average (EMA) and 15-Day SMA may be possible. On the downside, the market may still need to work further to reach its target down towards the 200-Day SMA and the Point of Control (POC) at 3,953. As such, investors should continue to monitor these levels to gain insights into potential market movements.

Markets Close Moderately Lower

At the close of the session, both the Nasdaq and S&P 500 recorded negative results. The S&P 500 futures closed down 1.55%, losing 63 points, while the Nasdaq futures declined by 1.25%, losing 145 points. The Dow Jones futures also followed suit, losing 1.74%, or 584 points. As such, there were losses across all the major indexes, with the Dow Jones futures experiencing a particularly sharp drop.