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SP500 jumps ahead of Powell’s speech

This week will provide investors with more insight into the Federal Reserve's plans for interest rate hikes, with Chairman Powell's speech at the Jackson Hole.

The benchmark SP500 index traded higher on Thursday, being 0.5% stronger ahead of the US session as the focus slowly turned toward the Jackson Hole symposium.

The customary Thursday unemployment claim data will provide further evidence of a rather tight labor market, and tomorrow’s Personal Consumption Expenditures index, the Federal Reserve’s favored inflation gauge, will provide an update on the situation.

Related blog: Nvidia’s net income down 72% year-on-year

After the previous reading, the report could provide further information about whether there is any new proof that inflation is approaching or has already reached a peak.

“However, the highlight of the week for investors is the Jackson Hole symposium and, in particular, the latest comments from Fed Chairman Powell when he speaks on Friday. Investors have been bracing for a reiteration of the Fed’s hawkish tone in continuing to raise rates to combat rampant inflation”, Richard Hunter, head of markets at Interactive Investor, said

All eyes are on Powell

The Fed is anticipated to retain its steadfast desire to reign in inflation at all costs, with the subsequent boost in September projected to be one of 0.75%, despite some emerging indicators of slower economic growth, which are partly driven by the rate hikes previously implemented.

Stocks rocketed after Powell announced another 0.75% rate increase in July, and yields kept falling as investors interpreted these front-loaded boosts as a warning that lesser rate hikes would be forthcoming soon.

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The Fed’s attempt to employ higher borrowing rates to cool a hot economy with rising inflation was likely hampered by the reversal in bond yields and a general easing of financial conditions.

However, numerous Fed officials have said that, given that inflation is near 40-year highs (and easing financial conditions), the central bank is unlikely to slow down the rate of interest rate increases. Currently, there is a 61% probability of a 75 basis point rate increase from the Fed in September.

Early on Thursday, Reuters released poll results of experts who lowered their year-end forecasts for the majority of significant indexes from three months prior and cautioned that the risks to that already gloomy picture were heavily weighted to the downside. The study results conclude, “It will be a frosty winter for global stocks.”

The Aug. 9-23 Reuters polls of over 150 equity market analysts showed nearly all of the 17 indices surveyed marking only single-digit gains for the remainder of the year.

Over a 60% of strategists who answered a separate question, 58 of 95, said the risks to their end-2022 forecasts were skewed to the downside. The remaining 37 said they were to the upside.

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