Wall Street this week was headed for a solid loss, weighed down by a rout in technology stocks and disappointing retail earnings. However, a dovish signal from Federal Reserve chair Jerome Powell on Friday at the annual Jackson Hole Economic Policy Symposium sparked a big rally, helping the S&P 500 eke out gains for the week. While the S&P and the Dow notched weekly gains, the Nasdaq posted a decline, as investors sold off pricey megacap technology stocks. Though Powell did not fully commit to cutting interest rates, he noted that the downside risks to the labor market were increasing and that the “baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
Now it appears that Trump will finally get his wish. While he was in Washington Friday, threatening to fire a Fed governor, the Fed Chair was in Jackson Hole explaining why rising unemployment means a policy adjustment may be in the cards. Powell’s comment, which instantly turbocharged markets, came despite widespread fear among economists that Trump’s trade war is a ticking time bomb for inflation and the US economy as a whole.
For the week, the S&P added 0.3%, while the Dow gained 1.5%. The Nasdaq slipped 0.6%.
Future Wealth’s View
The recent massive revision to payroll numbers gained attention only after President Trump ousted the head of the Bureau of Labor Statistics. The 258K jobs that were previously thought to have been added in May and June were actually non-existent, meaning the economy only added 19K and 14K jobs for those two months. Another weak gain of 73K was recorded in July, indicating a broad slowdown in job growth for the overall labor market. It is clear that the economy is hurting. Coupled with rising inflation, we have a situation where a modest interest rate cut in September may not be enough.
It is puzzling to us that the stock market is celebrating amidst signs of rising inflation and deteriorating employment. With hiring fundamentals no longer intact, it could require a bigger dose of monetary stimulus by the Fed, though that could also be complicated by signs of inflation heating up. The job of the Federal Reserve was never meant to be easy and this time around, the decisions they make over the next few meetings could decide the direction of the stock market for the rest of 2025 and 2026.