Pow-Wow

Jackson Hole wasn’t what Wall Street was expecting – in the best possible way. 

The Jackson Hole Economic Symposium is a three-day annual event that’s to central bankers what the Met Gala is to Hollywood. Around these parts, U.S. Federal Reserve Chair Jerome Powell is the main character. His keynote address shapes what’s in fashion with markets in the weeks that follow.

Last Friday, he downplayed the inflationary impact of tariffs, flagged risks to unemployment and said the ‘balance of risks’ could warrant a policy shift. This was the clearest signal yet that a September rate cut could be on the cards.

The Dow Jones Industrial Average (DJIA) rallied 846 points to a new record. The price-weighted index of 30 major public companies was led by Caterpillar ($CAT) and Home Depot ($HD). Only four Dow companies ended the day in red: Coca-Cola ($KO), Walmart ($WMT), Procter and Gamble ($PG) and Verizon ($VZ).

See, the Dow represents a basket of blue-chip companies widely seen as economic bellwethers. A rally there can broad signal investor confidence. And nothing screams confidence like shelling out for luxuries.

So it’s no surprise that cruise stocks like Carnival ($CCL) hit a 52-week high, and major airlines like Delta ($DAL) and American ($AAL) surged more than 6%.

Lower rates also cut borrowing costs - that would be good news for capital-intensive sectors like solar. Enphase Energy ($ENPH) gained 10%, while construction companies like Builders FirstSource ($BLDR) gained 8% on hopes that falling mortgage rates could kickstart housing activity.

Even the one sector that typically loses from lower rates was in high spirits: banks. Sure, net interest margins may narrow, but increased loan volume could soften the blow. Bank of America ($BAC) and Goldman Sachs ($GS) saw modest gains, but the SPDR S&P Regional Banking ETF ($KRE) jumped nearly 5%.

This week, risk assets have pulled back ahead of Nvidia’s ($NVDA) big earnings report. But maybe the biggest threat is that markets have already priced in a cut in. The CME FedWatch Tool shows traders have placed those odds at 87%. So at this point, the cut better come. 

This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.