U.S. stocks likely set for a modest bounce after Thursday's slide as the market waits for Fed Chair's address at Jackson Hole Economic Symposium.
(Friday market open) As the end of a whipsawing week for the market draws near, investors turn their attention to the week’s true headline act: Federal Reserve Chair Jerome Powell’s remarks today at the Jackson Hole Economic Symposium.
Powell’s speech, scheduled to begin at 10:05 a.m. ET, likely will set the market’s tone for today and perhaps even longer. The Fed leader’s words will be studied closely as the market tries to get a firmer grip on the long-term outlook for interest rates and the economy.
“Powell is facing a different dynamic compared with his speech at Jackson Hole a year ago, when inflation was above 8%,” says Kevin Gordon, senior investment strategist at the Schwab Center for Financial Research. “At this time last year, GDP growth was weak, and it wasn’t clear that the peak in inflation was behind us. Now, we’ve seen significant disinflation and growth estimates have reaccelerated.”
Stock futures based on the S&P 500® index (SPX) and Dow Jones Industrial Average® ($DJI) were up about 0.2% and 0.3%, respectively, in premarket trading, while futures based on the Nasdaq Composite® ($COMP) were little changed. The major benchmarks tumbled late Thursday as a tech-driven upswing earlier in the week faded.
The gains earlier in the week were driven in part by bullishness over artificial intelligence (AI), particularly surrounding chipmaker Nvidia’s (NVDA) surprisingly strong earnings. Barring a sharp sell-off, the COMP is on track to post its first weekly advance in the past four weeks.
The markets’ seesawing performance this week suggests investors remain uncertain over the outlook for interest rates and the economy. With earnings season largely over and few significant economic numbers until the Employment Situation report onSeptember 1 it’s up to Powell to fill a news vacuum.
Earnings parade: Earnings season is mostly over, but a handful of companies reported quarterly results late Thursday.
Economic reports expected later Friday morning include the final August University of Michigan Consumer Sentiment numbers. Analysts expect the sentiment reading to be unchanged from the preliminary figure of 71.2 released two weeks ago.
In the previous report, university researchers said consumers seemed to have grown more optimistic as inflation fell, noting “substantial improvements” relative to three months earlier.
The Fed is widely expected to keep its benchmark funds rate unchanged for at least another month. As of this morning, the probability that the Federal Open Market Committee (FOMC), the Fed’s policy-setting arm, will maintain current rates after its September 19–20 meeting is nearly 81%, down from 89% a week ago, according to the CME FedWatch Tool.
Traders are less certain over what the Fed may do beyond September, in part because a recent run of economic readings suggest the economy is still growing despite short-term interest rates reaching 22-year highs. Expectations that the funds rate would remain at its current 5.25%–5.50% target range after the FOMC meeting in November were about 51%, down from 64% a week ago, based on the FedWatch Tool.
Inflation is down sharply since Powell spoke in Jackson Hole a year ago. At that point, the Fed had only boosted rates four times, with another seven to follow through July. The overall Consumer Price Index (CPI) this past July was up 3.2% from the same month a year earlier. In July 2022, overall CPI was up 8.5% year-over-year.
Nevertheless, inflation is still running above the Fed’s 2% long-term target. Powell likely will continue to echo key messages heard frequently from central bank leaders in recent months—specifically that the Fed’s job isn’t done.
Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research, says he does not anticipate any “dramatic” changes in Powell’s speech. “It’s unlikely that Powell will signal a shift in policy, but any talk of the neutral rate being higher now may imply that rates will stay elevated for longer than expected,” he says.
CHART OF THE DAY: HIGHER FOR LONGER? Hours ahead of Federal Reserve Chairman Jerome Powell’s 10 a.m. ET speech today at the Jackson Hole Economic Symposium, the U.S. Dollar Index ($DXY—candlesticks) and the 10-year Treasury index (TNX—pink line) moved higher. The $DXY has moved to its highest levels since early June, indicating many traders expect continued hawkishness from the Fed on inflation and interest rates. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Ideas to mull as you trade or invest
Up, up, and away: Mortgage rates this week climbed to the highest levels since 2001—and there appears to be little respite in sight. Freddie Mac’s measure of the average 30-year fixed-rate mortgage climbed to 7.23% this week, the fifth consecutive weekly increase and the highest level since June 2001.“Indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short-term,” Sam Khater, Freddie Mac’s chief economist, said in a statement, according to Barron’s. High rates have chilled existing home sales, though sales of new homes recently picked up. But even the new-homes market may soon be pinched by 7%-plus rates. “New home sales will likely weaken in August as higher interest rates price out prospective buyers,” says Robert Dietz, chief economist of the National Association of Home Builders.
High on the hog: A combination of peak summer demand and new animal welfare laws in California is making bacon even more costly. Wholesale prices for pork bellies, which are sliced into bacon, reached about $2.71 per pound at the end of July—more than double the level at the beginning of the year, CNBC reports, citing FactSet. In addition to bacon consumption increasing in summer months, California’s Proposition 12, which went into effect July 1, bans the sale of pork from farms that confine pregnant sows in spaces that are less than 24 square feet. New construction of compliant housing costs $3,400 to $4,000 per sow, according to a pork industry group, making it about 40% more expensive to keep the same number of hogs. Those costs may restrict many pork producers and could keep pork supplies limited. But there may be some signs of potential relief for bacon lovers. U.S. hog numbers have ticked up slightly, according to government figures, and bacon demand typically slows after the summer. Also, futures are currently about 80 cents per pound, down 24% from a summer high.
Smashing pumpkins: For anyone hoping to enjoy the last few weeks of summer: sorry, it’s over. Pumpkin spice lattes are back. On Thursday, coffee chain Starbucks announced the return of its fall menu, including its Pumpkin Spice Latte, a whipped cream-topped espresso made with steamed milk, cinnamon, nutmeg, clove, and, of course, real pumpkin. The return of Starbuck’s pumpkin spice latte “marks the unofficial start of fall for many customers,” the company says in a statement. “Since its introduction in 2003… the iconic beverage has had an influence on the coffee industry, pop culture, and everything in between.” That’s not entirely hyperbole. U.S. sales of pumpkin-flavored foods and drinks totaled $802.5 million in the year ending July 29, up 42% from the same period in 2019, the Associated Press reports, citing Nielsen data.
Aug. 29: June S&P Case-Schiller U.S. Home Price Index, August Consumer Confidence Index, and expected earnings from Best Buy Co. (BBY), Big Lots (BIG), Box, Inc. (BOX), and HP Inc. (HPQ).
Aug. 30: August ADP employment and revised Q2 Gross Domestic Product.
Aug. 31: Weekly Initial Jobless Claims, July Personal Consumption Expenditures (PCE) price index, July Personal Income and Spending, August Chicago Purchasing Managers Index (PMI), and expected earnings from Dell Technologies (DELL), Dollar General (DG), Hormel Foods (HRL), Lululemon Athletica (LULU), and UBS AG (UBS).
Sept. 1: August Employment Report, Construction Spending, and the Institute for Supply Management Manufacturing Index.
Sept. 5: July Factory Orders, expected earnings from GitLab Inc. (GTLB) and Zscaler Inc. (ZS)
Quick Links
Trade
Invest
Service
Do Not Sell or Share My Personal Information
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services. Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold. unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2023 Charles Schwab & Co. Inc. All rights reserved.