Jackson Hole Central Bank Meeting Preview Overall Tone Is Hawkish, But US Stocks May Be Reaching a Turning Point.

Source: Wall Street News

Author: Zheng Yao

The rebound of US stocks has encountered a rival: the August curse. After a 14% rise in the S&P 500 in the first 7 months of this year, it has fallen by about 4% this month.

Blake Emerson, a global investment expert at J.P. Morgan Private Bank, believes that:

“Historically, August is usually a weak month for the market. After the significant rise at the beginning of the year, investors take a breather, which is not surprising. There haven’t been any major headlines, but investors’ perspective has changed.”

However, in the long run, Jackson Hole may help turn the situation around.

Central bank officials and economists gather in Jackson Hole, Wyoming, USA every year to discuss monetary policy. At last year’s meeting, Federal Reserve Chairman Powell reiterated the commitment to fight against high inflation in his speech.

Currently, the core PCE inflation rate is 4.1%, still twice as high as the Fed’s target of 2%. Therefore, investors will continue to closely watch Powell’s speech this Friday for clues as to whether officials believe further rate hikes are needed or if higher rates should be maintained for a longer period.

Investors expect the Fed to maintain high interest rates for a period of time and worry that this could push the economy into a recession. But Powell has repeatedly stated that the Fed will make decisions based on data. According to JPMorgan:

“We believe that this event is a good opportunity for Powell to lay the groundwork for the Fed’s next move: to no longer focus on how many expected rate hikes, but rather on keeping rates at a higher level for a longer period.”

Dave Sekera, Chief U.S. Market Strategist at Morningstar, wrote:

“Aside from the current narrative, I don’t expect to hear any other news… Inflation is slowing but still high, and the Fed’s tightening of monetary policy may not be over yet, and future decisions will depend on data.”

Jeffrey Roach, Chief Economist at LPL Financial, also shares a similar view, believing that the Fed will not abandon its 2% target.

Since there won’t be any fresh changes in the content of the speech, investors can only seek answers from Powell’s tone. More than 80% of respondents said that Powell’s speech in Jackson Hole will strengthen the hawkish stance. Last year, Powell’s stance on inflation was stronger than expected, leading to a 1008-point drop in the Dow Jones Industrial Average and even entering a bear market a month later.

However, investors should not expect a repeat of last year’s performance. Because, in the long run, the performance of US stocks after the Jackson Hole meeting is more optimistic. Dow Jones market data shows that since 1978, in the weeks following the Jackson Hole meeting, the Dow, S&P 500, and Nasdaq have all experienced positive growth.

On average, one month after the meeting, the Dow Jones Industrial Average (DJIA) rose 0.1%, the S&P 500 rose 0.3%, and the Nasdaq Composite rose 0.6%. The longer the time after the meeting, the better the stock market performance. Three months after the meeting, the DJIA averaged a 3% increase, the S&P 500 averaged a 2.8% increase, and the Nasdaq Composite averaged a 3.6% increase.

Therefore, based on historical data, as long as Powell doesn’t throw a curveball, it is very likely that the US stock market will get back on track.

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