STORY CONTINUES BELOW THESE SALTWIRE VIDEOSWASHINGTON - Investors may be underestimating the degree of potential market turbulence stemming from the Federal Reserve's economic symposium at Jackson Hole, Wyoming, potentially leaving them more vulnerable to a hawkish surprise, options strategists said.
A more hawkish-than-expected message from Powell at Jackson Hole last August sank the S&P 500 by 3.4% on the day of his address - the biggest reaction to a Fed chair’s speech at the annual symposium in at least 11 years, a Reuters analysis showed. At that time, options markets were primed for a move of around 1.4%.
Analysts at Bank of America also believe markets may be ill prepared for a hawkish message from Powell, writing earlier this week that recent strength in U.S. economic data would probably increase policymakers’ concerns about a reacceleration in inflation. Still, there may be greater scope for market gyrations this time around, analysts said. The S&P 500 has gained more than 15% year-to-date but the rally has stumbled this month as soaring yields on Treasuries threaten to dull the allure of stocks.
Across asset classes, the average volatility-adjusted move around Jackson Hole has almost doubled in the 2017-2022 period, compared with 2010-2016, the bank's strategists wrote in a note on Tuesday.