Equities Mixed Amid Fed Chair Powell’s Hawkish Speech and Weaker Economic Data Releases

Equities Mixed Amid Fed Chair Powell’s Hawkish Speech and Weaker Economic Data Releases

Equity market results were mixed last week amid the Fed’s cautious Jackson Hole speech and weaker economic data releases. Global equities (represented by the MSCI All Country World Index) and domestic stocks (represented by the S&P 500 Index) both broke multi-week losing streaks as these indexes were up 0.54% and 0.84% respectively. The tech-heavy Nasdaq lead the way up 2.27% while the Dow fell -0.42%.

Hawkish Speech

Fed Chair Jerome Powell’s speech at the annual Jackson Hole symposium last Friday remained hawkish as he emphasized their objective of bringing inflation down to their long-term target of 2%. Powell acknowledged that the impact of the past rate increases has not fully been felt in the economy yet, and the Fed will remain cautious and data dependent on any future hikes. The remarks were widely anticipated, and the probability for a rate hike at the September meeting inched up to 20% from 14% entering the week according to CME FedWatch Tool.

Cooling Manufacturing

While economic growth has remained relatively resilient this year, industrial and manufacturing data paint a cautious sign of further cooling. Durable goods orders released last Thursday fell 5.2% from the previous month, and S&P Global’s flash manufacturing PMI for August fell from 49 to 47, sinking slightly deeper into contractionary territory.

Home Sales

Existing home sales in July fell 2.2% for the month as the 30-year mortgage rate continued to rise to the highest level since 2001 at 7.23%, according to Freddie Mac. Existing home sales have fallen 16.6% on a year-over-year basis for July.

Jobs

Weekly jobless claims fell to the lowest level in three weeks, and this week a labor market update will be released for August. The generation of jobs has decelerated in the past few months as the economy added 187,000 jobs in July, less than consensus estimates.

Consumer Sentiment

The University of Michigan’s consumer sentiment August final reading fell from July’s high as higher inflation expectations brought the score lower. The surveys did show consumer expectations of income growth, especially among lower-income earners.

Inflation

Along with the labor market update, the Personal Consumption Expenditures (PCE) price index for July will be released. Core PCE, the Fed’s preferred gauge of inflation, has moderated to an annual pace of 4.1% in June. While moderating significantly from its peak in 2022, core inflation still is over double the Fed’s target rate.

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.