Market in Limbo as It Awaits Jackson Hole
As investors await clues on rate cut odds, it's unclear what the market even wants from the Fed chair.
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The market is in a state of uncertainty, as it awaits an important speech by Jerome Powell on Friday. While growth stocks have dropped sharply and moved several percentage points in the last two days, the Dow Jones industrial average has not moved more than 0.1% in either direction for five-straight sessions. There has been very strong rotational action, but there was also some aggressive dip buying of growth stocks on Wednesday.
The indexes have held up fairly well, but the S&P 500 is lower for four days in a row and indicated lower again on Thursday. Speculative interest has cooled, and Bitcoin IBIT has pulled back to its 50-day simple moving average.
The big question is, what does the market want from Jerome Powell? It is highly unlikely that Powell is going to signal that a rate cut is coming. He is under tremendous pressure from the Trump administration, but many economists believe that recent economic data is not supportive of a rate cut. There is even a faction that believes that there should be a hike.
Fed Fund futures indicate, however, a very strong likelihood that there will be a rate cut in September, regardless of the hawkish arguments. It is an unusual situation where investor sentiment is overwhelmingly more careful and cautious economic consideration. The demand for a rate cut is extremely strong, and if Powell resists, the market reaction is likely to be quite negative.
In addition to the uncertainty, we are also dealing with late August sluggishness and negative seasonality. Investors don’t typically make big bullish bets at this time of the year, and the potential for a negative reaction to Jackson Hole is quite high.
I’m holding fairly high cash levels and will be looking for technical setups, but I don’t feel any compulsion to put cash to work right away. We will see how things develop and go from there.
At the time of publication, DePorre had no position in any security mentioned.
