Fed Chair remarks at Jackson Hole likely to solidify that 8/5 was summer low.

VIDEO: The dread post the July FOMC turned into “uncertainty” last week as markets recovered.  We believe Jackson Hole will compel many skeptical investors into reluctantly positive as we expect a dovish Fed

Please click below to view our Macro Minute (duration: 4:40)

This coming week is the most important week for August 2024 because of the Jackson Hole Symposium and Fed Chair Powell speaks on August 23rd (Friday). Last week on 8/13, we noted that markets shifted to “risk-on” premised on a benign CPI. And building upon this, we see Powell as likely dovish, thus, supportive of further equity gains.

• After Tokyo Black Monday, we had noted that our view was this would prove to be a “growth scare” and even as market bottoms take time:
  – since 1928
  – most common month for a summer bottom is August
  – most common week for a summer bottom is first week of August
• In our conversations with clients, many viewed the Yen carry unwind as a dreaded risk. But as markets recovered, many investors remain sidelined because of their pessimism around the economy. We believe this is why Jackson Hole will create an upside opportunity.
• This is what is ahead for this week:
  – 8/19-8/22: Democratic National Convention Starts
  – 8/19 Mon 9:00 AM ET: Aug M Manheim Used Vehicle Value Index
  – 8/21 Wed: Market Update & Top Stock Ideas Webinar
  – 8/21 Wed 2:00 PM ET: Jul FOMC Meeting Minutes
  – 8/22-8/24: Jackson Hole Economic Symposium
  – 8/22 Thu 8:30 AM ET: Jul Chicago Fed Nat Activity Index
  – 8/22 Thu 9:45 AM ET: Aug P S&P Global Manufacturing PMI
  – 8/22 Thu 9:45 AM ET: Aug P S&P Global Services PMI
  – 8/22 Thu 10:00 AM ET: Jul Existing Home Sales    3.9me
  – 8/23 Fri: Powell Provides Opening Remarks at Jackson Hole
  – 8/23 Fri 10:00 AM ET: Jul New Home Sales    633ke
• And Jackson Hole starts 8/22 (Thu) but we will not hear from Powell until Friday 8/23.
• In the past 3 years, this is how markets reacted to his remarks:
  – 2021 –> 10-day +2% rally
  – 2022 –> 10-day -8% decline
  – Powell warned of “pain ahead”
  – 2023 –> 10-day +4% gain
  – Powell noted positive inflation progress
• In our view, the key is whether Fed Chair Powell is dovish. We expect this to be the case for two simple reasons:
  – first, inflation is tracking better than consensus expected
  – in other words, “falling like a rock”
  – second, labor market is softening as unemployment is rising
  – why would the Fed be hawkish
• Investors, we believe, sometimes forget the “stock market” is not the main audience of Fed Powell communications. His words affect CEOs and small businesses and consumers and how these consituents make future plans.
• A “hawkish” Fed will cool any plans for businesses to expand, thus worsening the softness in labor markets. And this would risk pushing a weakening labor market into contraction.
• So we believe the Fed will be dovish.
• Moreover, in just the past 3 days, 3 Fed members spoke in support of rate cuts:
  – 8/15 Bostic in FT wrote of support of cuts
  – 8/15 St Louis Fed Musalem supports cuts
  – 8/18 Fed Daly in FT interview in support of rate cuts
• We believe those who turned bearish on Yen carry trade unwind and Fed remarks on 7/31 are the ones who will be incrementally positive post-Jackson Hole.

BOTTOM LINE: Evidence growing that equities made their summer lows on 8/5.

Generally, August to October is a tough period for markets. One important client, ES of NY, has repeatedly mentioned to me “I never make money in August.” And that is consistent with the view of Mark Newton, Head of Technical Strategy, that Aug to Oct is window where stocks risk/reward is less attractive than the period post-election.

• Since 1950, however, of that period between August to October, the S&P 500 has bottomed most commonly during August.
  – August, Sept and Oct low %: 44%, 17%, 40%
  – meaning, markets most likely bottom in August (for that period)
• Guess what is the most common week for the bottom?
  – the first week of August
  – 15 of the 74 years
• Lastly, we need to be mindful that Iran could launch an attack this week, in response to several high profile assassinations. The Olympics ended August 11. So, markets are naturally wary of the headline risk from this. But we know the adage:
  – “sell the build-up, buy the invasion”
• The only thing is that at the start of the Russia-Ukraine war, markets had a short relief rally. But that war has since become a larger and most costly conflict. So, problems percolating in the Middle East are not to be taken lightly.

• But just because markets might have some headwinds near term does not change the probabilities of a strong second half. As we noted previously:
  – Since 1950, when S&P 500 is up >10% in the first half
  – 23 instances
  – 2H (second half) gains +9.8%, 83% win-ratio
  – the 4 negative 2H instances were 1975, 1983, 1986, 1987
  – essentially, all the negative 2H were during Volcker era

Bottom line, markets are certainly showing strong signs of gaining their footing. And we also view this panic as ultimately being a growth scare (coupled with a carry trade unwind).

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Key incoming data August 2024:

• 8/1 8:30 AM ET: 2Q P Nonfarm Productivity Tame
• 8/1 8:30 AM ET: 2Q P Unit Labor Costs Tame
• 8/1 9:45 AM ET: Jul F S&P Global Manufacturing PMI Tame
• 8/1 10:00 AM ET: Jul ISM Manufacturing PMI Tame
• 8/2 8:30 AM ET: Jul Jobs Report Tame
• 8/2 10:00 AM ET: Jun F Durable Goods Orders Tame
• 8/5 9:45 AM ET: Jul F S&P Global Services PMI Tame
• 8/5 10:00 AM ET: Jul ISM Services PMI Tame
• 8/6 8:30 AM ET: Jun Trade Balance Tame
• 8/7 9:00 AM ET: Jul F Manheim Used vehicle Index Mixed
• 8/12 11:00 AM ET: Jul NY Fed 1yr Inf Exp Tame
• 8/13 6:00 AM ET: Jul Small Business Optimism Survey Tame
• 8/13 8:30 AM ET: Jul PPI Tame
• 8/14 8:30 AM ET: Jul CPI Tame
• 8/15 8:30 AM ET: Jul Retail Sales Data Tame
• 8/15 8:30 AM ET: Aug Empire Manufacturing Survey Tame
• 8/15 8:30 AM ET: Aug Philly Fed Business Outlook Tame
• 8/15 10:00 AM ET: Aug NAHB Housing Market Index Tame
• 8/15 4:00 PM ET: Jun Net TIC Flows Tame
• 8/16 10:00 AM ET: Aug P U. Mich. Sentiment and Inflation Expectation Tame
• 8/19 9:00 AM ET: Aug M Manheim Used vehicle index
• 8/21 2:00 PM ET: Jul FOMC Meeting Minutes
• 8/22 8:30 AM ET: Jul Chicago Fed Nat Activity Index
• 8/22 9:45 AM ET: Aug P S&P Global Manufacturing PMI
• 8/22 9:45 AM ET: Aug P S&P Global Services PMI
• 8/22 10:00 AM ET: Jul Existing Home Sales
• 8/23 10:00 AM ET: Jul New Home Sales
• 8/26 10:00 AM ET: Jul P Durable Goods Orders
• 8/26 10:30 AM ET: Aug Dallas Fed Manuf. Activity Survey
• 8/27 9:00 AM ET: Jun S&P CoreLogic CS home price
• 8/27 10:00 AM ET: Aug Conference Board Consumer Confidence
• 8/29 8:30 AM ET: 2Q S 2024 GDP
• 8/30 8:30 AM ET: Jul PCE Deflator
• 8/30 10:00 AM ET: Aug F U. Mich. Sentiment and Inflation Expectation

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: