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Market Brief – J-Pow Sends Market Back To Highs

After the market slid lower all week, testing the 20-DMA on Thursday, Jerome Powell’s speech at Jackson Hole turned sentiment on a dime. The S&P 500 returned to record highs, and the Dow surged 900 points. Investors took his tone as confirmation that a September rate cut is in play. Specifically, Powell noted the slowdown in employment as a key reason for the shift in stance, as noted in the key paragraph from his speech.

“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate.

Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance.

Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.“

Wall Street also noticed the shift in tone. Krishna Guha of Evercore ISI called it a “clear pivot to risk management.” He added the speech “gave markets permission to rally.” Bank of America’s Michael Gapen noted Powell’s comments were “dovish without overcommitting,” keeping pressure off the Fed to act immediately while softening market fears.

While stocks had been under pressure earlier this week, specifically in the overbought Technology sector, Powell opened the door for the bulls. The rally lifted risk-based sectors. Small caps led. Bitcoin and bonds bid, and homebuilders, airlines, and regional banks surged. The dollar fell as yields dropped sharply.

However, risks remain. Inflation is not yet anchored. Powell downplayed tariff impacts, but new trade policies could stoke price pressures. If data surprises to the upside, markets could whiplash. BlackRock’s Rick Rieder warned the Fed “must still see inflation trending toward target,” and cautioned that easing too fast “could reignite instability.” Don Carter at Fort Washington Investors also remained concerned, stating, “Even with Powell’s more dovish tone, the data in the coming weeks still pose some risks. The market will like this change in tone. But I think we must be careful not to get too far ahead. There is still a lot of data between now and the next FOMC meeting.”

As we will discuss in today’s newsletter, while earnings season was solid, valuations are clearly stretched. The risk to investors is that with the Fed’s next move priced in, any hesitation could lead to stocks giving back recent gains.

Technical Backdrop

Price remains in a primary uptrend as the S&P 500 held its initial test of the 20-DMA on Thursday. On a daily basis, the market remains well above the 20, 50, and 200 DMAs, with the top of the current trend channel rising toward 6600. Such keeps the trend constructive as long as pullbacks hold support. Short‑term pivots for the next session cluster around 6,470, with resistance being the recent all-time highs from two weeks ago.

Furthermore, daily momentum is positive but edging hot. RSI(14) sits in the low‑60s, MACD, however, remains on a “sell,” and several faster oscillators (Stoch/RSI variants) registered overbought readings into Friday’s rebound. One note is that relative strength, momentum, and money flows remain in a “negative divergence” to the market, increasing near-term investor risk. However, the “buy‑the‑dip” strategy continues to perform well for now.

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Participation improved, but it’s not euphoric. Roughly 61% of S&P constituents are above their 50‑DMA and about 63% above their 200‑DMA, which is healthy, but not yet stretched. For now, breadth is supportive, but still something to monitor for confirmation via higher highs in the A/D lines.

Despite the sell-off this past week, volatility remained subdued and closed near 14 into the close, consistent with a risk‑on term structure. Options appetite is still very bullish: the 10‑day average Cboe total put/call sits near 0.84. Positioning is mixed across cohorts: NAAIM equity exposure remains high while AAII shows a cautious retail stance. After this week’s close, we will see if retail begins to chase more aggressively.

Under the surface, the week’s rebound broadened: small caps and cyclical pockets outperformed on Friday, with the Russell 2000 ripping ~4% as yields fell. Equal‑weight (RSP) has begun to show short‑term relative improvement versus cap‑weight (SPY). Even though RSP still trails YTD, it is an encouraging sign of incremental broadening. Sector‑wise, weekly performance tilted toward cyclicals (energy/materials/industrials) with defensives mixed, while megacap tech cooled earlier in the week and rejoined late.

Key Levels & Risk Markers (near‑term)

• Support: 6,385 (20‑DMA), 6,269 (50‑DMA), 6,269 (200‑DMA). A close below the 50‑DMA would signal loss of short‑term trend grip.
• Momentum guardrails: Daily RSI mid‑60s; a rollover with negative divergence would raise pullback odds.
• Internals to confirm: S&P %>50‑DMA pushing sustainably >65–70%.
• Sentiment: Watch if VIX ≤13 and put/call MA pushes lower, would increase risk of a shakeout.

Outlook for Next Week: Neutral

The primary trend is up (price above rising key MAs; breadth decent), and Friday’s broad snap‑back helps. But short‑term momentum is warm, volatility is compressed, and pro exposure is already high while seasonality turns less friendly. Netting those, the risk/reward into next week looks Neutral: tactically favor pullback buys above the 20‑DMA and fade crowded breakouts if internals (breadth/AD lines) fail to confirm. Keep an eye on small‑cap follow‑through and whether equal‑weight leadership persists; both would upgrade the signal; a quick VIX spike and breadth roll‑over would downgrade it.

Key Catalysts Next Week

Next week’s calendar could test the durability of the post-Jackson Hole market rally. The Fed’s preferred inflation gauge, the July PCE price index, is set for release alongside data on personal income and consumer spending. These figures will help shape expectations for the September FOMC meeting. On the earnings side, Nvidia (NVDA) reports midweek, with investors looking for signs of continued AI-driven growth. Reports from MongoDB, CrowdStrike, and HP will also offer insight into tech sector momentum. Retail names like Best Buy, Bath & Body Works, and Urban Outfitters will give a read on discretionary spending trends.

Overall Risk Outlook: Neutral

The short-term outlook leans neutral, but with a bullish bias if key data confirms a soft-landing narrative. Markets are coming off a strong rebound driven by Powell’s dovish tone at Jackson Hole. His signal that the Fed may ease if labor market risks rise gave investors a reason to buy back into risk assets. That optimism now hinges on incoming data. Investors should stay alert. The bias is bullish, but a neutral posture is warranted unless data aligns with dovish policy expectations.

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