Market Reacts as Jerome Powell Hints at Rate Cut Slip
The market sold off as Federal Reserve Chair Jerome Powell detailed his outlook on interest rate cuts for September.
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As was widely expected, the Federal Reserve left interest rates unchanged exiting its July policy meeting. However, the market sold off as Fed Chair Jerome Powell’s post-policy presser unfolded, an event that, coming into this week, we shared our thinking with you that this could happen:
"The near-term concern is a market that looks forward to more dovish comments from Fed Chair Powell Wednesday afternoon, instead of his saying 'need to see more data,' is likely to be disappointed."
During that event, Powell shared that the policy committee has “made no decisions” about a potential policy change in September. Not surprising to us, given what we saw on the inflation front in the Flash July PMI data and the volume of economic data to come before the Fed concludes its next policy meeting on September 17. There is also the upcoming August 1 tariff deadline and how that may or may not bring additional inflation pressure. Powell, being Powell, shared that it would take some time for the Fed to conclude the impact of tariffs on inflation.
Gaming out recent data and potential trade deals, as we get July and August data, it’s possible we could see rate cut expectations slip from September to October. In the grand scheme of things, that would not be a tremendous issue, although the path to it could renew market volatility, especially during the somewhat lazy days of August. As we have done in the past, should that come to pass, we will aim to capitalize on it for the Portfolio and you as we continue to follow the data.
In the very near-term, the larger development to watch will be quarterly results after Wednesday's market close and Thursday's from Microsoft MSFT, Meta META, Apple AAPL and Amazon AMZN, and their implications for Nvidia NVDA as well as others riding the AI/data center wave. Over the last few days, we’ve talked about how those aggregate earnings could bring about a positive inflection point for 2H 2025 EPS expectations. If that’s the scenario we get, it would likely take some of the recent angst over the market’s valuation off the table. It would also be a positive one for the Portfolio and many of our holdings.
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At the time of publication, TheStreet Pro Portfolio was long MSFT, META, AAPL, AMZN and NVDA.
