The stock market’s rally has met its match: the August doldrums. The
S&P 500
is down about 4% this month after rallying 14% through the first seven months of the year.
Jackson Hole could help turn things around in the long run.
Central bank officials and economists gather each year in Jackson Hole, Wyo., to discuss monetary policy. At last year’s meeting, Federal Reserve Chairman Jerome Powell reiterated in a speech his commitment to battling historically high inflation. With core inflation at a roughly 4% annual rate, investors this year will be watching Powell’s Friday speech for clues into whether officials think the central bank needs to raise rates further or keep them higher for longer to meet its 2% inflation target.
Investors are anticipating the Fed will keep rates high for some time and are concerned that could push the economy into recession. And Powell has repeatedly said the Fed will make its decisions based on data.
“I don’t expect to hear anything other than the current narrative,” Dave Sekera, chief U.S. market strategist at Morningstar, wrote. “That inflation is moderating yet still too high, that [the Fed is] concerned that tightening monetary policy might not be over yet, and that they’ll be data dependent moving forward.”
Jeffrey Roach, chief economist for LPL Financial, shared a similar sentiment, saying that he doesn’t see the Fed moving away from its 2% target.
That leaves investors left with interpreting Powell’s tone. Last year, the Dow Jones Industrial Average fell 1,008 points after Powell delivered a more hawkish stance on inflation than expected.
That was a dramatic drop, and Powell’s words didn’t stop the Dow from entering a bear market just a month later. But investors shouldn’t expect a repeat of last year’s performance if history is any guide.
Barron’s worked with Dow Jones Market Data to analyze how the major stock indexes performed on the day of Jackson Hole and in the months afterward since the event began in 1978.
According to the data, the
Dow,
S&P 500,
and
Nasdaq
have all seen positive gains in the weeks following Jackson Hole. One month after the meeting, the Dow gained an average of 0.1%, while the S&P 500 rose an average of 0.3% and the Nasdaq climbed an average of 0.6%.
Those numbers improve as time goes on. In the three months following the event, the Dow gained an average of 3%, the S&P 500 rose an average of 2.8%, and the Nasdaq climbed an average of 3.6%.
So long as Powell doesn’t throw any curveballs, the stock market might be on track to pick up steam again.
Write to Angela Palumbo at [email protected]
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