Jackson Hole debrief: "the time has come"
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First of all, my apologies to all our readers for missing this week’s Tuesday post. It was ready to go, but I simply forgot to schedule it. We had a good response rate in the survey, so I guess most of you are alerted to the survey anyway. To all those who forgot to do the survey because of this, I apologize.
Now on to macro, and the key event from this week.
Powell delivered his keynote annual Jackson Hole speech yesterday. The main message: “time has come to cut interest rates.”
In a nutshell, this was a “soft landing” type of speech. He gave a detailed economic overview of why inflation happened (pretty decent in my opinion), and hinted that the Fed does not expect the hiking cycle to result in a recession.
This was our conclusion last week:
…in the case Powell accepts that cutting in September is imminent, but not due to a recession, and that they don’t expect a recession, this will trigger a short-term relief rally.
I saw one comment that this was Powell’s victory speech. Reminded me a lot of his December 2023 “job done” speech, when markets started pricing in a soft landing with 6 cuts in 2024. Didn’t quite work out like that, but I guess expectations are we’re still getting there, one way or another.
The market reaction was knee-jerk up. It was the pivotal event we have been waiting for, and the conclusions are more than clear. The bias is long assets. Tech rallied, small caps exploded (they benefit the most from rate cuts), bonds rallied, even gold went up. All that after a strong dip on Thursday in all of these assets. In hindsight (20/20), Thursday turned out to be a great buy-the-dip opportunity.
Where does this put us in our short-term and long-term macro scenarios?