Fear seems to be increasing as investors await two days of Fed Chair Jerome Powell’s “Humphrey Hawkins” testimony to Congress starting Tuesday. Some of that trepidation is a result of concerns that the Fed might not be as dovish as some investors had hoped. This comes in part from last Friday’s positive jobs report, which might have reinforced some of the Fed hawks’ impressions that things are humming along in the economy.

Traders have noticed how the VIX is a little off kilter compared to where it normally might read, giving pause as to whether a selloff is looming.

Brian Stutland, a CME trader on CNBC said, “We saw a little profit taking over these last two days here, and what’s interesting when I look at the VIX and volatility, the VIX is trading around 14 here, somewhat elevated. When you have markets hitting all-time highs yet the VIX is not near around 11 or 10 or so, there is some concern. We saw a lot of put buying in the S&P over the last couple of days. People taking protection [in case]we get some sort of selloff. So we’ll see if that comes to fruition or if that just unleashes another rally because people are overprotected on the downside.”

Still, experts believe it is unclear how the chairman will comment, given that not much has changed in the global environment since the last meeting.

Scott Nations, another CME trader added, “I do think it’s interesting that the S&P anyway not so much the Dow, but the S&P has come all the way back. It’s essentially unchanged right now. I think that we know so little more about what Chairman Powell is likely to say than we knew say at the end of the last Fed meeting, that it wouldn’t make sense for the market to get very ahead of itself one way or the other. I do think it’s appropriate for the 10 year yield to be back above 2%, although just barely. And so we’re just gonna have to wait and hear what he has to say.”

Some experts anticipate more of the same type of comments from Powell, with a rate cut expected.

Gabriela Santos JP Morgan’s Chief Global Strategist explained, “I don’t think his testimony, his description of the world is gonna sound all-too different from the June Fed meeting. And I think that’s exactly what the market wants to hear. And the reality is the world hasn’t changed that much. We are seeing a slowdown in the economy. There are downside risks, and inflation is low. So ultimately we do think he will validate that market expectation of a July cut. I think where we’re paying a little bit more attention is the nuance around how much further rate cuts we get beyond that July meeting. That’s something that’s nuanced but that we’ll be listening for tomorrow.”

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