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Two down, none to go, at least for this week. Item #1, Nvidia (NVDA) earnings, gave us quite a whipsaw yesterday. Item #2, Fed Chair Powell’s Jackson Hole speech, also provided a head fake in the immediate aftermath of his comments.(Text of speech here)

A reporter reached out for comment shortly after Powell’s speech concluded, and my response included:

It’s what I expected – a reminder that since we’re above their inflation target, hikes remain on the table, and don’t expect cuts anytime soon. Not much new.

Why? Just yesterday, we accurately asserted:

… it is difficult to imagine him [Powell] doing much other than reminding the market that even if rates are held at current levels, they are liable to rise if necessary and unlikely to fall unless either their inflation target is met, or economic circumstances become dire enough to warrant a rate cut. 

To be fair, others who were quoted in that article echoed the theme about little new in the speech.  Indeed, the Chair reminded listeners how inflation remains above the 2% inflation target, noted that the economy remains (stubbornly?) strong, and restated the potential for additional rate hikes – not cuts.  His conclusion summed up the Fed’s position neatly:

…we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data. Restoring price stability is essential to achieving both sides of our dual mandate. We will need price stability to achieve a sustained period of strong labor market conditions that benefit all.

We will keep at it until the job is done.

That is why it was a bit surprising to see equities rip higher as the speech began. The S&P 500 rallied about 30 points in a matter of minutes even though there was little in his commentary that was overtly positive for stocks. Perhaps “not bad” was perceived as good enough.

Considering what we saw in NVDA yesterday, when “way better” ended up as “meh”, we might as well have expected that “not worse” would also end up as “meh.”Or at least that is the case so far at midday. 

At the time, I reminded folks that when it comes to the Fed, the first move is often the wrong move. There proved to be no follow-through — traders react but investors consider – and stocks gave back their initial gains. Equities sank further when Treasury yields flipped from lower to higher, probably tied to reports about a potential auto workers strike in mid-September. An inflation-fighting Fed is good for longer-term yields, but a strike that leads to higher wages directly contradicts this portion of Powell’s speech:

This rebalancing has eased wage pressures. Wage growth across a range of measures continues to slow, albeit gradually.

Fed Funds futures traders seem to be paying attention to Powell’s message. Expectations for a November rate hike rose to 60%, up from 52% yesterday, and while they still expect cuts to begin as early as May, the odds have diminished slightly. 

I got the sense that with the speech behind them, many traders and investors alike have now turned off their screens and headed out of town for the last summer weekend before Labor Day. (I’m still here, btw). Thin markets can become unpredictable, so I would be unsurprised if traders either attempted a summer Friday ramp, got nervous if NVDA continues to the downside (it’s currently about -4% lower), or even both. But I ultimately find it disconcerting that of the two pieces of major news this week, we sold off even when the former was wildly better than expected, and failed to rally even when the latter was no worse. 

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