Friday, Jackson Hole Wyoming, Fed Chair Jerome Powell will give his widely anticipated speech on the US economy and where interest rates may be heading.
Will the Fed hold tight or continue raising rates? Messaging from Jackson Hole in the past has impacted markets. Let’s see what happens this time…….
Bond yields shot higher last week on the back of massive new Treasury issuance, the Fed shedding its balance sheet and the thoughts the economy is cranking along nicely so far in the 3rd quarter. The 10-year US Treasury ended last Friday with a yield of 4.25%.
Stocks are in the middle of an August downturn with most major stock indexes down over 2% last week.
From the recent market highs, the Dow is down (3.30%), the S&P 500 (5.17%), the Nasdaq (7.97%) and the Russell 2000 (7.42%). So far, this has been a garden variety pullback.
Nvidia, with all the Artificial Intelligence hype, will report earnings on Wednesday. The stock is up 196% so far in 2023, which includes it’s recent 10% plus pullback. A positive guidance report will be important for the technology sector going forward.
After significant market moves higher, most investors will say, we need a pullback. A pullback can influence other investors to buy into the market, eventually moving all boats higher.
When the actual pullback arrives, it always has several negative issues that make investors doubt whether it is in fact, an actual pullback, or a correction (10% or more) or the start of a longer-term down trend.
This pullback does have a lot of moving parts. Corporate profits are not as bad as many anticipated, inflation appears to have significantly moderated off its high however Bond yields are now moving higher.
If the 10-year US Treasury continues to move higher, longer-term rates on bonds will become more attractive to investors, perhaps at the expense of equities.
I believe the current situation of doubt is normal, providing more current questions than answers. The current set of issues (inflation) has not been experienced by most of today’s investors. We were a bit too young in the late 70’s and early 80’s.
With so many economic and market-moving parts, I believe a well-diversified and allocated portfolio makes perfect sense. Just add in a little patience as our current set of concerns may take a while to work out.