We started this year with the market pricing in only “good things”. We had (a) the Fed ready to continue its easing cycle; (b) business friendly administration looking to cut taxes and lower regulation; and (c) the promise ‘limitless’ returns from AI. Investor expectations were very high – evidenced by the valuation multiples they were willing to pay (whether it was P/E; P/FCF; EV/EBIT etc). Traders were all leaning to one side of the boat. However, shares prices have lost all momentum the past 12+ weeks.
Uncategorized
Actionable market insights delivered to your inbox weekly
Markets Hedge as Momentum Wanes
As an investor – it’s very important to know the rules. For example, if the rules are constantly influx – it leads to uncertainty. With heightened uncertainty – you pull back. That’s what faces investors. For example, consider the following: (i) direction of monetary policy (e.g., as Powell raised concerns on inflation); (ii) A torrent of policy shifts from the White House; and (iii) major disruption with artificial intelligence – as investors question return on capital invested. Uncertainty in each of these buckets makes it hard to commit to stocks with conviction.
Powell Takes a Victory Lap
Fed Chair Powell didn’t disappoint at Jackson Hole – giving the market what it wanted to hear… rate cuts are coming. All that remains how many and by when? That’s not something Powell was ever going to offer (why remove optionality) – but the market is willing to bet we receive at least three cuts by year’s end. All eyes now turn to two major economic reports: (i) PCE due Aug 6 and (ii) Aug nonfarm payrolls due Sep 6. For e.g., if Augusts payrolls are similar to June’s (where only 114K jobs were added) – we could see the Fed cut rates 50 bps come Sept. What signal will that send to the market?