Powell Creates Friday Hole in Jackson

After reaching an exactly 2-month rally to a 4-month high on August 16, the S&P 500 has lost momentum with an increase in volatility (as expected), ending the week 4.0% lower. Almost all the damage done was done on Friday after Fed Chair Powell’s Jackson Hole speech. The Nasdaq (-4.4%), the Dow finished with a 4.2% loss, and the German DAX (-4.2%), tied to China, finance, and energy led the way down. On a sector basis, gains in energy and materials helped while technology, consumer staples, and financials saw the largest declines.

Energy closed higher for a third consecutive week with a +4.3% gain fueled by comments from members of OPEC concerning production cuts to stabilize prices. The tech sector lost -5.6%, financial stocks lost- 3.6% , and industrials dropped -3.4% on the week.

The Jackson Hole Summit was in-person for the first time since 2019 with markets awaiting remarks from Fed Chair Powell. In a short, 8-minute speech, Powell’s message was clear: monetary policy will need to move “forcefully” and “purposefully” to bring inflation back to the 2% goal. The Fed chief pushed back against premature rate cuts (which we have not believed in for 2023) and signaled another large rate hike next month. As usual, he added that they remain “data dependent”, but on a Friday during summer, with little liquidity, few traders listened to that part. Following Chair Powell’s speech Friday, most of Wall Street to expect the FOMC to slow the pace of rate hikes from here, delivering a 50bp hike in September and 25bp hikes in November and December, for a terminal rate of 3.25-3.5%.

Here’s a short list of data the Fed may be looking at over the next 3 weeks before September 20-21 FOMC meeting: August’s jobs data (out next Friday, September 2), CPI figures (September 13), University of Michigan’s inflation expectation data (September 16).

 

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