Markets ascended higher this week surrounded by optimism on a change in monetary policy and rate cuts. Will the trail down be smooth, or will we need to proceed with caution?
Monday S&P 500 0.97% | NASDAQ 1.39%
Markets kicked off the week in a similar fashion as the prior week. There is growing optimism that the Federal Reserve’s fight against inflation is entering the last round. The bout has been going on for almost 30 months and markets have heeded the latest indicators as confirmation of the necessity to ease monetary policy. The Jackson Hole Symposium begins on Thursday with public remarks set for Friday morning.
Tuesday S&P 500 -.20% | NASDAQ -.33%
Markets were little changed but finished lower after the Monday lift to start the week. In contrast to the large fall in early August and subsequent rebound, Tuesday’s fall was within range of a normal (less volatile) trading day. There was little economic data to report.
Wednesday S&P 500 .42% | NASDAQ 0.57%
Trading reconvened in the middle of the week as Tuesday’s losses were recouped and then some. The big news was related to the downward revisions in the annual job growth estimates for the next 12 months (818k less than August 2023). The release further cemented that a cooling labor market and falling inflation will induce the Federal reserve to make their first rate cut on September 18th of this year. The minutes from their last meeting showed some policy makers even considered a cut in July.
Thursday S&P 500 -.89% | NASDAQ -1.67%
The Jackson Hole Symposium began on Thursday as all ears will wait to hear the stance on forward-looking policy. While the day progressed, however, important data came out about slowing in manufacturing (again). Due to the limited activity, much of the selloff was attributed to preemptive sales leading up the Federal Reserves’ speech on Friday morning. Since August 5th’s volatile session, the S&P500 has regained 7.7% and the NASDAQ has recovered 9.6%.
Friday S&P 500 1.15% | NASDAQ 1.47%
We are a go! Chairman Powell began his public address Friday morning and now feels comfortable with incoming data to warrant an adjustment in policy. Markets were validated in their belief that the time has come to implement the first of several rate cuts that are necessary to keep the economic momentum going.
Conclusion S&P 500 1.45% | NASDAQ 1.40%
The week ended positively after the conclusion of the Jackson Hole Symposium (and a relatively light week overall). The Federal Reserve does not officially meet in the month of August but provides guidance on the direction of monetary policy leading up to meeting in mid-September at the symposium. It has been an uphill battle to get to a low inflation environment and with the backdrop of the Grand Tetons, the time has come to begin the descent. The tricky part is that the economy must now adjust to the implications of a declining interest rate environment. The process takes time, and the decision to shift policy is the first step to avoid a complete stop in production and growth. Expect slowing to continue but opportunities to arise as the consumer and businesses enjoy a bit more breathing room. Low interest rates plus a strong labor market are crucial for sustainable growth.
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