Stocks Kick Off Jackson Hole Week On A Quiet Note: Markets Wrap

Wall Street saw a quiet start to a key Federal Reserve week, with geopolitics coming into play as Ukrainian President Volodymyr Zelenskiy and his European allies get ready to meet with Donald Trump to a potential peace deal with Russia.

Following a series of all-time highs for the S&P 500, the gauge wavered on Monday. Traders will get a close look at how American consumers were faring in the early days of Trump’s tariff regime when giant US retailers like Walmart Inc. and Target Corp. report earnings this week.

The yield on 10-year Treasuries advanced two basis points to 4.34%. The Bloomberg Dollar Spot Index rose 0.3%.

A big week is coming up for the central bank as the Kansas City Fed’s annual Economic Policy Symposium kicks off Thursday in Jackson Hole, Wyoming. The prestigious event in the Grand Teton mountains has been used by Fed chairs as a venue for making key policy announcements.

Jerome Powell is expected on Friday to unveil the Fed’s new policy framework — the strategy it’ll use to achieve its inflation and employment goals. He may also drop some hints about the Fed’s thinking ahead of its September policy meeting.

“For now, the market appears to be betting that signs of labor-market weakness will outweigh inflation risk in the Fed’s rate-cutting debate,” said Chris Larkin at E*Trade from Morgan Stanley.

Powell’s Jackson Hole speech will be the focal point this week, with the nature of the debate shifting from whether the Fed will cut rates to how much and how quickly, according to Jason Pride and Michael Reynolds at Glenmede.

“The stars are aligning for a September rate cut; inflation remains relatively restrained and the labor market is beginning to show early signs of weakness,” they said.

Bond markets have been tempted to think it’s already a lock. Two-year Treasury yields have plunged this month as traders swung toward pricing in a quarter-point cut in September.

Those bets took off after the unexpectedly bad July employment report, which also revised payrolls for the prior months downward. And they’ve only been dialed back slightly in the light of last week’s inflation surprise.

“If the Fed is going to cut next month, expect hints out of this week’s Jackson Hole Symposium,” said Scott Wren at Wells Fargo Investment Institute.

“It’s likely the FOMC will cut rates in September to manage the risk of a potential fallout in the labor market,” said Anna Wong at Bloomberg Economics. “But given uncertainty on the upcoming August jobs report, Powell won’t be able to say as much in Jackson Hole.”

To Krishna Guha at Evercore, Powell has considerable latitude heading into his Jackson Hole speech Friday in terms of how specific or not he wants to be in terms of the message for September.

“We suspect he will continue to be careful and will not commit his hand in advance for the next meeting,” Guha said. “But we think the message will be consistent with what we see as a pretty solid central case of a ‘cautious cut’ with 25 basis points in September.”

Guha says substantially worse labor market deterioration would be needed to deliver a 50 basis-point move, while a surprise re-tightening of the labor market combined with adverse inflation news would be required to call a 25 basis-point cut into question.

With recent downward jobs number revisions and stable inflation, Richard Saperstein at Treasury Partners expects the Fed to use Jackson Hole as an opportunity to prepare the markets and signal a potentially accommodating stance through year-end.

“We expect a 25 basis-point rate cut in September as a nod to the surprise weakness in hiring in recent months,” he said. “The powerful combination of stable inflation, ongoing economic growth and expectations of declining interest rates justifies current stock valuations.”

Although multiples are elevated, stocks should continue to benefit from earnings growth into the end of the year, Saperstein noted.

“The economy continues to show resilience in the face of three years of elevated interest rates and more recently, the addition of tariff shocks,” he said.

S&P 500 companies trounced expectations this earnings season after they found ways to blunt the impact of tariffs and benefitted from a weaker dollar, according to strategists at Goldman Sachs Group Inc.

“The quarter has been marked by one of the greatest frequency of earnings beats on record,” David Kostin, chief US equity strategist at Goldman Sachs, wrote in a note.

Analysts are ratcheting up earnings estimates for the current quarter at the swiftest pace in nearly four years. A Citigroup Inc. index that tracks the relative number of US earnings-per-share estimate upgrades versus downgrades is at its highest since December 2021.

Corporate Highlights:

• Novo Nordisk A/S is slashing the cost of Ozempic for cash-paying patients after the diabetes shot became the poster child for high US drug prices.
  • Novo Nordisk’s blockbuster weight-loss drug Wegovy received US approval to treat a serious form of liver disease, beating rival Eli Lilly & Co. to the US market.
• A group of investors led by the owner of several boutique New York hotels agreed to take Soho House & Co. private in a $2.7 billion deal for the members’ club operator that’s struggled since its initial public offering.
• Thoma Bravo is in talks to acquire human resources management software provider Dayforce Inc., according to people familiar with the matter.
• Air Canada pulled its financial guidance through year-end, citing the impact of a strike by flight attendants that has caused the airline to cancel hundreds of flights.
• Hon Hai Precision Industry Co. will operate a US factory owned by SoftBank Group Corp., setting up what’s in the running to be the first manufacturing site in the Japanese company’s $500 billion Stargate venture with OpenAI and Oracle Corp.

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 11 a.m. New York time
• The Nasdaq 100 fell 0.1%
• The Dow Jones Industrial Average was little changed
• The Stoxx Europe 600 was little changed
• The MSCI World Index fell 0.1%
• Bloomberg Magnificent 7 Total Return Index fell 0.3%
• The Russell 2000 Index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.3% to $1.1664
• The British pound fell 0.3% to $1.3517
• The Japanese yen fell 0.5% to 147.95 per dollar

Cryptocurrencies

• Bitcoin fell 1.7% to $115,670.61
• Ether fell 3.1% to $4,333.97

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.34%
• Germany’s 10-year yield declined one basis point to 2.77%
• Britain’s 10-year yield advanced five basis points to 4.74%
• The yield on 2-year Treasuries advanced two basis points to 3.77%
• The yield on 30-year Treasuries advanced two basis points to 4.94%

Commodities

• West Texas Intermediate crude was little changed
• Spot gold was little changed

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