Strategist Urges Caution Ahead of Jackson Hole as Powell Prepares Key Economic Outlook Speech
Market analysts are keenly anticipating Federal Reserve Chair Jerome Powell’s speech at the Kansas City Fed’s annual Jackson Hole Economic Symposium this Friday, expecting him to lay the groundwork for a potential September rate cut. However, a surprise in Powell’s messaging could jeopardize the recent stock market rebound.
Powell’s address on the economic outlook, scheduled for 10 a.m. Eastern, is a focal point of the symposium, which runs from Aug. 22-24 in Wyoming’s Grand Teton National Park. While this event isn’t typically used to signal immediate policy shifts, Powell’s speech will be heavily scrutinized this year, following a period of heightened market volatility as traders adjust their expectations for the Fed’s rate trajectory.
Recent market movements, including a sharp selloff triggered by a softer-than-expected July jobs report, highlight the market’s sensitivity to Fed signals. This makes Powell’s speech all the more significant, as it comes ahead of the Fed’s September meeting and during a communications blackout period that will limit the central bank’s influence over market expectations.
Historically, Jackson Hole has seen modest market reactions to Fed speeches. Over the past 20 years, the S&P 500 has averaged a 0.4% gain during the symposium, with slight positive returns in the following month.
However, there have been notable exceptions, such as in 2022 when the S&P 500 dropped 3.4% after Powell dashed hopes for a quick end to the Fed’s rate hikes.
This year, many expect Powell to hint at a rate cut in September, with inflation easing and the Fed potentially shifting its focus to employment, according to James Knightley, ING’s chief international economist. Still, some strategists, like Steve Sosnick of Interactive Brokers, warn that investors may be overly optimistic about the likelihood of significant rate cuts.
Sosnick suggests that Powell could take a more cautious approach, signaling that while further cuts are possible, the Fed might proceed slowly unless the economic data worsens. Such a message could undermine the market’s recent gains, especially with recession fears growing and the equity market’s sensitivity to bad news increasing.
“I’m preaching a bit of caution ahead of Jackson Hole,” Sosnick advised. “The more the market rallies beforehand, the more fragile it becomes.”
U.S. stocks ended the week higher, with the Dow, S&P 500, and Nasdaq all posting their best weekly gains since early November. Investors will also be closely watching the release of the Fed’s July meeting minutes and key labor market data next week, which could further influence market sentiment.
