Stock Market Rallies After Powell’s Speech at Jackson Hole Symposium
The U.S. stock market experienced a significant upswing on Friday following a more moderate monetary policy signal from Federal Reserve Chair Jerome Powell, which triggered a surge in risk assets.
Major Indices Rise
- The Dow Jones Industrial Average increased by 1.9% to reach 45,631.74 points, setting an intraday record of 45,732.11.
- The Nasdaq Composite rose by 1.88% to 21,496.54 units.
- The S&P 500 advanced by 1.52% to 6,466.9 points.
All sectors, except for consumer staples, gained intraday. The discretionary consumption sector led the rise, followed by energy and communication services.
Weekly Performance
- The S&P 500 added 0.27% for the week.
- The Dow Jones gained 1.53%.
- The Nasdaq declined by 0.58%.
The Russell 2000 index, sensitive to interest rates, surged, reaching its highest level of the year.
Breaking the Losing Streak
With Friday’s gains, the S&P 500 broke a five-day losing streak after tech stock liquidations pressured U.S. equities throughout the week.
Powell’s Balancing Act
In prepared remarks for the annual Kansas City Federal Reserve Economic Policy Symposium in Jackson Hole, Wyoming, Powell stated:
“Short-term risks to inflation are tilted upward, while risks to employment are downward; a complex situation.”
“With policy in restrictive territory, the baseline perspective and the changing risk balance may justify a policy adjustment.”
Labor Market Data and Interest Rate Expectations
Earlier in August, the Bureau of Labor Statistics reported that nonfarm payrolls increased by 73,000 jobs in July, missing the consensus forecast of a 104,000 increase. June’s initial estimate was revised down to 133,000 jobs and May’s to 125,000.
The Fed chair noted that labor market growth and participation have moderated. Powell believes recent employment data increases downside risks for the labor market and reduces upside risks for inflation, according to Morgan Stanley.
The probability of a 25-basis-point interest rate cut in September rose to 83% on Friday evening from 75% the previous day, according to the CME FedWatch tool.
Powell’s shift in stance supported Jefferies’ expectation of three rate cuts this year, starting next month, as stated by Thomas Simons, the U.S. chief economist.
Political Pressure on the Fed
Jorge Gordillo, director of Analysis at CIBanco, mentioned that although Powell left room for rate cuts, President Trump’s threat to fire Lisa Cook from the Federal Reserve Board due to mortgage fraud allegations intensifies pressure on the central bank.
“If her position becomes vacant, Trump would have the opportunity to further shape the Fed board in his favor and potentially exert greater influence over monetary policy, undermining the central bank’s independence.”
U.S. Credit Rating Affirmed
Gabriela Siller, director of Analysis at Banco Base, explained that stock market gains were primarily observed during Friday’s session following Jerome Powell’s comments.
Fitch Ratings affirmed the U.S. credit rating at AA+ with a stable outlook by week’s end, stating:
“The deficit is expected to fall from 7.7% of GDP in 2024 to 6.9% in 2025, driven by increased federal government revenues, including tariff-related income estimated at around $250 billion or 0.8% of GDP.”
Key Questions and Answers
- Who is Jerome Powell? Jerome Powell is the Chair of the Federal Reserve, responsible for overseeing U.S. monetary policy.
- Why is Powell’s speech significant? Powell’s speech at the Jackson Hole symposium signaled a more moderate monetary policy approach, boosting investor confidence and driving stock market gains.
- What are the implications of recent labor data? Recent employment data suggests moderating growth in the labor market and reduced inflation risks, potentially influencing the Fed’s decision on interest rates.
- What is the current expectation for interest rate cuts? Market expectations have increased for three interest rate cuts this year, starting next month.
- How does political pressure affect the Federal Reserve? Political pressure, such as President Trump’s threat to remove Lisa Cook from the Federal Reserve Board, could undermine the central bank’s independence and influence monetary policy decisions.
