The Jackson Hole Economic Symposium, which runs from August 21 – 23 and is capped off with a speech by Fed Chair Jerome Powell on Friday morning, is drawing a disproportionate amount of attention this year.
The Kansas City Fed kicked off its annual symposium with a session on agricultural trade in 1978 in Kansas City, MO.; it wouldn’t move to Jackson Hole until 1982, and it wasn’t particularly relevant (at least as far as investors are concerned) until the late 2000s with former Chair Ben Bernanke and the implementation of Quantitative Easing in response to the Great Financial Crisis.
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In other words, dry conversations and academic theory on fiscal policy and macroeconomics weren’t major needle-movers for investors until the Fed turned on the money printers.
What’s Different This Year
This year’s theme is “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy,” and the conversation will center on structural change in the labor market. Quoting the Federal Reserve Bank of Kansas City’s press release:
“Labor markets are undergoing structural change. Some drivers of this change reflect the acceleration of pre-existing trends, such as declining birth rates, an aging labor force, and reduced labor mobility. There have also been new developments like the spread and maturation of artificial intelligence, which could potentially change the economic role and value of labor.
“How these factors will affect labor markets over the coming years and how those developments will interact with fiscal and monetary policy will be among the questions Symposium participants explore.”
There will, undoubtedly, be valuable insights into the evolving nature of labor in a world increasingly dominated by AI, but that’s not why investors are tuning in.
Rather, investors are going to be watching because the Fed’s September meeting is right around the corner. As I write this, the CME FedWatch tool shows that markets are pricing in an 85% chance of a rate cut in the September meeting, with an 84% chance of another rate cut (or two) through the end of this year.
Why You Should Care
If Powell leans dovish and signals that a rate cut will be coming, stocks could rally, bond yields could fall, and gold might catch a bid. Small-cap stocks would be obvious beneficiaries given their tendency to outperform during periods of low interest rates.
If he sounds cautious, reminding everyone that inflation is still sticky, you could see the opposite.
It’s important to note that part of the reason this symposium is under intense scrutiny is the July meeting, in which two FOMC members dissented from the decision to hold rates steady (for the first time in more than 30 years).
In other words, there is already highly visible internal pressure on Powell and the FOMC (as well as external political pressures) to cut rates, meaning that the market may be setting itself up for acute disappointment should rates hold steady in September.
Jackson Hole is a high-profile opportunity for Powell to either endorse or reset the market’s expectations.
Now, Jackson Hole itself doesn’t typically prompt a ton of volatility in the market.
Per a note from DataTrek Research co-Founder Nicholas Colas (quoted by MarketWatch here), written prior to last year’s summit, the market tends to rally in the two weeks around the meeting.
Dating back to 2010, the S&P 500 has rallied, on average, 0.9% in the two weeks around the summit. It should be noted, however, that between August 30, 2024, and September 6, 2024 (the next week outside that window), the S&P ran into a bout of selling, suffering a 4.25% drawdown.
That said, this time may look more like 2024 than the previous 14 years.
What to Do as an Investor
Should Powell come out and signal that the return of inflation, against the backdrop of a healthy-ish (if deteriorating) labor market, is his overriding concern, that could easily trigger some selling.
Given the weak seasonality (September is historically the worst month for the market) and elevated valuations, it’s not hard to envision a hawkish statement at Jackson Hole snowballing into a selloff.
On the other hand, if Powell fully endorses cuts, then it’s far more likely that the market finds support and resumes its uptrend.
The upcoming commentary shouldn’t be the deciding factor, but if you’ve been on the fence of late, it can certainly be a deciding factor. If you’ve been selling some winners and building up cash, and Powell is dovish, it’s a bit of a green light (keep in mind the weak seasonality, though). But if he’s on the fence or strikes a cautious tone, be ready to play some defense.
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