The week of August 23 will likely prove to be an important one in the markets. Starting on Thursday, central bank leaders from around the world will meet virtually to talk about monetary policy during a traditional event often referred to simply as “Jackson Hole”.
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The interest rate risk
There seems to be a consensus that Federal Reserve chairman Jerome Powell will do little to “rock the boat” this week. Easing off on monetary stimulus is widely expected to occur over the next several months, but few seem confident that Mr. Powell will announce a change in policy as early as August.
Still, the risk that the Fed will start to scale back its asset purchases later this year is real. Analysts will probably dissect Jerome Powell’s keynote speech, on Friday, in search for clues on the exact timing. Comments perceived to be hawkish could send yields higher – the 10-year treasury rate is only 1.3%.
If recent history can serve as a guide, climbing yields tend to be bad news for growth stocks. Below are the main reasons why this is the case, as previously discussed on this channel:
“First, monetary tightening is a negative for consumption, everything else held constant. Second, a higher discount rate makes Apple’s far-out financial results less valuable in present value terms.”
For instance, the 10-year rate shot up from around 1% to nearly 1.5% in February alone. Probably not a coincidence, AAPL sank 8% that same month, while the value-rich Dow index managed to reach higher.
Brace for possible volatility
Regardless of which way the stock market may head following the Jackson Hole symposium, volatility could rise as August comes to a close. This is the case because speculation, both on the bullish and bearish sides of the argument, tends to increase around important events like this.
Volatility is both good and bad news for Apple stock. Market jitters can be uncomfortable for many investors, and some might be tempted to sell or trim their positions after a selloff. On the other hand, a possible pullback that is unrelated to the company’s fundamentals could open an opportunity to buy AAPL on weakness.
This is precisely what happened in mid-June, following an important Federal Reserve meeting that the market perceived as hawkish. Those who bought AAPL at those levels, a move defended by the Apple Maven, saw the value of their investment rise by 14% in a matter of only about 10 weeks.
Do you believe that this week’s Jackson Hole meeting of central bank leaders will have an impact on Apple stock in the short term?
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)