Stock market investors will take a cautious approach for the best part of the week ahead, before a highly anticipated speech on Friday by Jerome Powell at the Global Central Banking Conference in Jackson Hole, Wyoming.
The Federal Reserve chairman’s speech will open the event at 10:00am EDT and focus on the outlook for inflation and rates.
It’s tipped Powell will reiterate concerns about inflation and hose down speculation of an early dovish policy pivot.
If Powell does do this, it could end a recent rally in growth stocks which has been fuelled by speculation that inflation has peaked and the Reserve Bank will prematurely end the tightening cycle.
“Mr. Powell is widely expected to argue against the arguably-premature loosening in financial conditions that has occurred since the July meeting, attempting to better align market forecasts with the central bank’s own terminal rate projections. We think Powell will also work to lower expectations for a “pivot” in early 2023.” said Corpay chief market strategist Karl Schamotta
“A long history of policy reversals has lulled investors into thinking that the same cycle will play out this time, with the central bank raising rates only to start slashing them when the economy slows. Inflation has likely already peaked — and negative year-over-year prints could come at some point — but inertial forces make a return to pre-pandemic price trends deeply unlikely. Once rates hit near-neutral levels (still well below historical norms), fear of an inflationary resurgence should prevent a return to stimulative settings.”
Bianco Research president, James Bianco, says he thinks the Jackson Hole speech will give stock market investors more clarity around the economic outlook.
“The market cannot decide if the Fed will hike 50bps or 75bps next month. If vacillates above and below 50% and never strays far from 50/50. It should get clearer after Powell speaks this Friday in Jackson Hole,” said Bianco.
Stock Market reaction to previous Jackson Hole speeches
This year, the Jackson Hole conference’s title is Reassessing Constraints on the Economy and Policy.
It will be Jerome Powell’s fifth appearance in consecutive years at the conference.
So, how has the market responded in previous years? Here’s the daily movement in the S&P 500 on each of Jerome Powell’s previous Jackson Hole speeches.
| Jerome Powell Speeches at Jackson Hole | S&P 500 |
| 2021 – Friday August 27 | +0.88% |
| 2020 – Thursday, August 27, | +2.57% |
| 2019 – Friday, August 23 | -2.59 |
| 2018 – Friday, August 24 | +0.62% |
The bottom line – if Powell expresses concern about the extent of inflation problem and talks tough on further rate rises and monetary policy tightening, a mini stock market crash could occur on Friday as the renewed investor confidence of the past few weeks takes a hit.
However, if Powell gives any indication that he thinks the worst of the inflation problem might be over and that monetary policy could turn dovish in 2023, the stock market might just soar.
The later, however, appears most unlikely.