Will Jackson Hole Speech Spark a Big Stock Market Move?

Wall Street was on edge Thursday, with stocks trading lower as investors awaited what could be a pivotal policy speech from Federal Reserve Chair Jerome Powell. 

Powell is scheduled to speak Friday morning at the Fed’s annual Jackson Hole Economic Policy Symposium. Investors will be scrutinizing Powell’s address for signs that the Fed is ready to resume cutting interest rates in September after nine months on hold.

Powell’s speech is the biggest event of the week for the stock market, and traders are positioning themselves accordingly. Options pricing suggests investors expect the S&P 500 to move about 0.8% in either direction through the end of this week. That’s nearly twice the S&P 500’s average daily move over the past month. 

Will History Repeat Itself at Jackson Hole?

At last year’s Jackson Hole, Powell declared the Fed was ready to begin cutting interest rates more than a year after policymakers hiked rates for the 11th and final time in their post-pandemic policy tightening campaign. 

“The time has come for policy to adjust,” Powell said. “With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market.” 

It was the news Wall Street was hoping for. The S&P 500 jumped more than 1% to trade just shy of an all-time high. Though for investors last year, seeing was believing; it wasn’t until mid-September, when the Fed cut rates for the first time, that the index finally broke its previous record. 

Rate Cut Expectations—and Stocks—Are Falling

Evercore ISI analysts warned in a note on Sunday that Powell’s speech could deliver stocks a rough patch if Wall Street finds his comments inadequately dovish. “For a market that was eager to embrace ’50 in Sept’, a balanced view could catalyze a near term -7% to -15% pullback into October,” the analysts wrote, referring to recent speculation that the Fed could make a jumbo, 50 basis point (bps) cut next month. 

Deutsche Bank economists are also worried about Wall Street’s high hopes. In a note earlier this week, they expressed concern that Powell’s comments, which they expect to be “more balanced” than his last statement in July, “could create uncertainty about September cut prospects, at least relative to current elevated pricing.”

But expectations and stock prices have moderated in recent days. The S&P 500 fell in each of the last four sessions. If the index declines on Thursday, it will mark its longest losing streak this year. 

And in the last week, traders have become less confident of any rate cut, let alone a jumbo one, in September. Federal funds futures trading data put the odds of a 25 bps cut at about 72% on Thursday, down from 92% a week ago, according to CME Group’s FedWatch Tool.