The Fed’s Favored Inflation Measure Cools Ahead of Chairman Powell’s Jackson Hole Speech

The long awaited day has come as Federal Reserve Chairman is expected to speak this morning at the Fed’s Jackson Hole Economic Symposium. Trading has been a bit subdued all week as investors have waited for the speech.
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Key Takeaways

  • Chairman Powell Finally Speaks This Morning at the Fed’s Jackson Hole Symposium

  • Growth Stocks Trail Value and Income Stocks, but a Recent Surge is Closing the Gap

  • Many Money Managers are Shifting Away from Publicly Traded Stocks, But Some of the Ultra Rich are Finding Bargains

Shawn Cruz, Head Trading Strategist, TD Ameritrade

(Friday Market Open) Stock performance has been tempered all week as investors wait for today’s speech by Federal Reserve Chairman Jerome Powell at the Fed’s Jackson Hole Economic Symposium.

Potential Market Movers

Futures traders may be betting on hawkish talk from Mr. Powell because gold futures were down 0.81% in premarket trading. Gold has moved up the last three days after a six-day losing streak. Many technical analysts would read gold’s chart as a bear flag pattern.

The Fed’s favored inflation report, the PCE price index, was released this morning ahead of the opening bell. The report’s July headline inflation number was 6.3% for the previous 12-months but actually fell 0.01% month over month (MOM). The core inflation numbers were also good, coming in lower than at expected at 0.1% MOM instead of the projected 0.3%. Year-over-year core inflation was 4.6%, which was below the expected 4.7%.

While the inflation numbers were an improvement in July, consumers are spending less; personal spending grew at just 0.1% instead of the projected 0.4% for the month. Personal incomes also grew at slower-than-expected pace of 0.2% versus the forecasted 0.6%.

After the market open, the Michigan Consumer Sentiment report will come out. It’ll provide more insights into how consumers are feeling about inflation and how it’s affecting their spending habits.

Equity index futures were relatively flat ahead of the open despite the Cboe Market Volatility Index (VIX) ticking a little bit higher. The 10-year Treasury yield (TNX) was down about three basis points to 3.05% which may have pushed the U.S. Dollar Index ($DXY) down 0.34% in premarket action. However, not much is expected to happen until Mr. Powell speaks this morning.

Reviewing the Market Minutes

After rising four days straight, the 10-year Treasury yield (TNX) looked like it would make it five days in Thursday’s early morning session. However, the yield fell throughout the day giving up eight basis points to close at 3.03%. The 2-year Treasury yield rose two basis points to finish at 3.39%. The move deepened the yield curve inversion as measured by the 2s10s ratio. The inversion has held since the end of June.

Falling yields appeared to give stocks a boost, pushing the S&P 500® index (SPX), Nasdaq ($COMP), and the Dow Jones Industrial Average ($DJI) respectively higher by 0.75%, 1.00%, and 0.37%. Growth stocks also benefited from lower yields as the S&P 500 Pure Growth Index rose 1.82%. However, value stocks weren’t that far behind with the S&P 500 Pure Value Index climbing 1.35%.

Technology was strong despite some mixed earnings reports. Salesforce (CRM) fell 3.4% after a weak forward outlook that came with its better-than-expected earnings report. There was a flurry of action around Snowflake (SNOW) that caused it to rocket 23% because it reported and forecasted earnings above expectations. Finally, Nvidia (NVDA) rose 4% despite its negative earnings guidance.

WTI crude oil futures failed to maintain Wednesday’s break above resistance around the $94.25 level. The commodity settled at $93.08 for a loss of 1.9%. However, the energy sector was still positive on the day as were all other market sectors. 

CHART OF THE DAY: GROWTH, VALUE & INCOME. The S&P 500 Pure Growth Index ($SP500PG—candlesticks) is down more than 19% year-to-date (YTD). These growth stocks are underperforming the Dow Jones U.S. Select Dividend Index ($DJDVP—blue) which was up more than 1% YTD and the S&P 500 Pure Value Index ($SP500PV—pink), which was down more than 1% (YTD). However, growth stocks have really trimmed their losses recently after being down as much as 32% in June. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platformFor illustrative purposes only. Past performance does not guarantee future results.

Three Things to Watch

FOOD FIGHT: U.S. shoppers are getting out of the house and into brick and mortar stores to do their grocery shopping. According to Gallup, in-person shopping trips increased six points to 37% compared to a year ago. However, shoppers are still using the convenience of online shopping with 28% of grocery orders being placed online which was five points higher than the previous year.

Diners are also going out more than they were last year as the number of people dining out at least once a month increased nine points from 2021. The survey was conducted in early July.

CORN POPS: Corn prices have risen recently as the USDA’s found an increase in corn crops that were rated poor or very poor and the Pro Farmer Midwest Crop Tour examined drought conditions in southeastern South Dakota and reported an increase in corn crops that were rated poor or very poor. U.S. corn futures have risen more than 17% from their July lows and recently broke above June highs.

However, corn prices are still 19% lower than their May highs when uncertainty peaked with Russia’s invasion of Ukraine.

OVERSEAS EARNINGS: According to data from Refinitiv, European Q2 earnings reports look a little different than the U.S. The STOXX Europe 600 is seeing a growth rate of 29.5%, well above the S&P 500’s gain of 8.8% for the period. However, like the U.S., European earnings are being largely driven by the energy sector with a growth rate of 205.8%. S&P 500 energy companies are on track for a growth rate of 120.2% in the second quarter.

The STOXX 600 is also seeing higher growth rates in industrials (42.6%), basic materials (40.9%), consumer cyclicals (22.7%), and health care (18.3%). The weakest earnings growth rates are in real estate (-67.8%), consumer non-cyclicals (-64.3%), and financials (-1.9%).

Notable Calendar Items

Aug 26: Fed Chairman Jerome Powell speaks at Jackson Hole, PCE price index, Michigan Consumer Sentiment, Personal Income, and earnings from Marvell Technology (MRVL) and Dell (DELL)

Aug. 29: Dallas Federal Reserve Manufacturing Index

Aug 30: CB Consumer Confidence, JOLTs Job Openings and earnings from Crowdstrike (CRWD), Hewlett Packard (HPE), Chewy (CHWY), Best Buy (BBY), and Big Lots (BIG)

Aug 31: Earnings from Polestar Automotive (PSNY), (TCOM), Cooper (COO), and Five Below (FIVE)

Sept 1: ADP Nonfarm Employment, ISM Manufacturing PMI, and earnings from Broadcom (AVGO), Lululemon (LULU), Hormel Foods (HRL), Campbell Soup (CPB) and Toro (TTC)

Good Trading,

Shawn Cruz

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Key Takeaways

  • Chairman Powell Finally Speaks This Morning at the Fed’s Jackson Hole Symposium

  • Growth Stocks Trail Value and Income Stocks, but a Recent Surge is Closing the Gap

  • Many Money Managers are Shifting Away from Publicly Traded Stocks, But Some of the Ultra Rich are Finding Bargains

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