Yesterday’s piece, equating the economy to a mattress (hard, soft, bumpy?), seemed to garner some attention and follow-up questions. The more I think about and discuss the likely outcomes for next week’s Jackson Hole meeting, the more I return to this concern: that Chair Powell will tell us to “Curb Your Enthusiasm”.
We wrote:
It hardly seems appropriate for Chair Powell to re-affirm [the market’s] likelihood [of more than three cuts this year] at his Jackson Hole address next week given that it would put him well ahead of the last Summary of Economic Projections just weeks before the next one is due. Remember, just two years ago he threw a big bucket of cold water on market hopes for a less restrictive rate path as the FOMC was busy raising rates.
Someone correctly reminded me that most Jackson Hole conferences are relatively uneventful affairs for the stock market, yet I keep harping on the most recent exception to that pattern. Indeed, most of the time investors are in synch with the prevailing Fed policies. But now I think we’re not, just like in 2022. Remember, at that time the prevailing market hope was for a Fed “pivot”, but we were skeptical that Powell’s speech would acknowledge one:
If the parade of economists interviewed in the media are any indication, Chair Powell should come out forcefully with a discussion about further rate hikes and quantitative tightening. Markets seem to be pricing in a cessation of rate hikes and a potential cut down the road. From whom did they get idea, pray tell?
And by the way, we’re STILL awaiting that pivot! We’ve gotten a rhetorical pivot, with the FOMC and Chair acknowledging the possibility and even the likelihood that rate cuts are imminent. But once again investors are ahead of the Fed.
While that has been the case all year – remember the 6-7 cuts that were expected at the start of this year? – the stronger than expected economy made those cuts unnecessary. Fortunately. A strong economy is always better for stock prices than one weak enough to require aggressive cuts. Now that we are seeing signs of slowing, it is reasonable to hope for less restrictive monetary policies, and the Fed has not dissuaded us from that hope. But the hopes may need recalibration, and there is no better opportunity for Powell to do that than Jackson Hole.
This seems to be an out of consensus view right now. If folks were truly concerned, then we wouldn’t see VIX trading below 15. It appears few traders are willing to anticipate volatility or demand hedging protection ahead of Jackson Hole and the following week’s Nvidia (NVDA) earnings. I guess the market is more willing to view Powell in his more typical “Goldilocks” role than as a curmudgeonly Larry David.
Join The Conversation
If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.
Leave a Reply
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.
Disclosure: Options (with multiple legs)
Options involve risk and are not suitable for all investors. For information on the uses and risks of options, you can obtain a copy of the Options Clearing Corporation risk disclosure document titled Characteristics and Risks of Standardized Options by clicking the link below. Multiple leg strategies, including spreads, will incur multiple transaction costs. "Characteristics and Risks of Standardized Options"
My money is on Powell sticking to the academic gobbledygook germane to those conferences-2022 being the exception-
So, “Nothing to see here”for Mr. Market is his best option.
lol great show, good reference.
We hope that you continue to enjoy Traders’ Insight!
All 17 FED Reserve members will make-a unanimous decision. They always do. It is political. I know The Chairman has been disavowing “Any political influence “, so That implies he’s lying. It is political. And, the deficit can’t afford the interest. So rates must drop to 3.5% so stuff ( housing and spend to $60 TRILLION by 2030), is less expensive. Yes, $60 Trillion in 6 years. TT
3 % inflation may sound low … but compounds over time . It’s crazy to cut rates until inflation is Zero . In Paul Volckers book he questioned – where did this 2 % inflation goal come from ? Inflation is simply Government printing too much money . Inflation is a secret tax . Government should be forced by law to cut spending whatever the inflation rate is .
After the QQQ has gone up $50 in ten days (!!!???), I like put options now.
I’m obviously going against the momentum, but now everything is overstretched again, the S&P market capitalization is back above $46 Trillion, and the chart still looks like one side of Mount Everest.
I am standing by my call that the S&P is a lock to see 4500 again.