Jackson Hole & Interest Rates in Focus

Week in Review

Two weeks ago, stock markets were on high alert as fears of a looming recession shook investors. The situation was further exacerbated by a complex currency trade that caused Japanese stocks to suffer their worst day since 1987, causing unrest in global markets.

However, last week we saw a dramatic turnaround as stock markets bounced back. The U.S. indexes, in particular, recorded their best week of the year, with the S&P 500 rising by 3.9% and the Nasdaq Composite by 5.3%, breaking four-week losing streaks. This surge of optimism was fueled by several factors including stabilizing inflation, strong retail sales, and promising jobs data.

One anomaly in the retail sales data was car sales. Due to the hack of dealerships back in June, many car sales were pushed back into July.

Another contributing factor was the anticipation that the Federal Reserve would finally begin cutting interest rates. This speculation will be put to the test next week when Fed Chairman Jerome Powell delivers his annual address at the prestigious Jackson Hole symposium.

While earnings season will take a backseat as it winds down, the numbers continue to be reassuring. With almost 93% of the S&P 500 companies reporting, second-quarter profits are expected to increase by 12.5% year over year.

Overall, the S&P 500 is now just shy of its mid-July record, with a less than 2% difference. The direction of the markets next week will depend largely on Powell's speech at Jackson Hole on Friday, which could potentially propel us to a new high.

Economic & Earnings Calendar

Next week's economic calendar will be filled with notable events, including the highly anticipated annual Jackson Hole conference hosted by the Federal Reserve. The conference will feature a speech by Fed chair Jerome Powell on Friday, where he is expected to lay the groundwork for a potential interest-rate cut in September.

We expect the Fed to make their first interest rate cut in September by 0.25%. Further rate cuts will come, but we do not believe a larger cut is warranted for the first cut.

The central bank will also provide insights into its monetary policy decisions with the release of the minutes from its late-July meeting on Wednesday. Economic data to watch out for includes the Conference Board's Leading Economic Index for July on Monday, and S&P Global's Manufacturing and Services Purchasing Managers’ Indexes for August on Thursday.

Investors will also be keeping a close eye on earnings reports next week, with Palo Alto Networks and Estee Lauder kicking off on Monday, followed by Lowe's on Tuesday. Wednesday will see reports from Analog Devices, Target, and TJX, while Thursday will feature Dollar Tree, Intuit, and Ross Stores.

Palo Alto Networks, a name widely held by our clients is expected to move over 9% when it reports earnings on Monday afternoon. The market may be expecting the cyber security firm to benefit from the outages caused by competitor CrowdStrike.

Chart of the Week: Year to date worldwide box office.

Disclaimer: The author of this blog is a financial advisor but may not be the right advisor for you. In fact, the author may not even be the right advisor for themselves. Please consult a qualified professional before making any financial decisions based on the content of this blog. And remember, just because the author has a fancy title and a briefcase full of spreadsheets, doesn't mean they know what they're doing.