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Markets expect the Fed chief to signal a rate cut, but will he? (0:17) Walmart earnings: bull case and bear case. (3:01) Another Meta AI revamp? (5:06)
The following is an abridged transcript:
It’s Jackson Hole week and maybe the most critical speech in Jay Powell’s tenure as Fed chairman.
Powell’s keynote is Friday at 10:00 a.m. ET.
The Jackson Hole symposium theme this year is “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy.” But all anyone will want to hear is whether Powell is on board with starting to cut rates again or if it’s still wait-and-see time.
The weak August payrolls number and the downward revisions to previous months ramped up market expectations for a quarter-point rate cut in September. But the hottest PPI in three years – some of which feeds into the core PCE that the Fed favors to measure inflation — tempered some of the dovish enthusiasm.
A 25 bps cut next month is still priced in with odds above 90%, but a third quarter-point cut this year is no longer the baseline.
But Andrea Cicione, head of strategy at T.S. Lombard, says “markets remain overly confident on the pace of Fed easing.”
“Following soft labor and CPI prints, a September 25bp cut was fully priced in but a hotter PPI has tempered expectations. We see September as a close call, particularly if payrolls rebound and expect the Fed to adopt a data-dependent stance thereafter.”
Markets pricing multiple cuts this year and a terminal rate near 3% appears optimistic and “no September cut could see easing stall near 3.5%,” he said.
SA analyst Damir Tokic expects Powell’s speech to lean hawkish, even with the risk of President Donald Trump finding a way to oust the Fed chief.
“At this point, it appears that tariffs are causing higher inflation based on the PPI data, however, the importers are absorbing most of the price pressure for now based on the CPI data. Powell is likely to acknowledge that the risk of an eventual increase in CPI is very high,” he said.
Looking to the impact on Wall Street, Clark Geanen, chief market strategist at CalBay Investments, says “Jerome Powell’s Jackson Hole commentary is so important because the stock market has been gaining steam in recent weeks on expectations of a September rate cut, and investors are hungry for additional validation of this expectation.”
BofA strategist Michael Hartnett said while investors are “pumped” for the Fed to join the rate cut party, as valuation is seen as the sole impediment to further corporate bond and equity upside, a Dovish Powell equals “buy rumor, sell fact profit-taking.”
Powell could also use the speech to underscore the need for Fed independence as the White House continues to lobby for much lower rates.
As Barron’s noted, the Nixon administration in ‘70s lobbied Fed Chairman Arthur Burns to keep rates low despite rising inflation, which contributed to double-digit price growth. Paul Volcker was forced to raise rates to nearly 20% to break inflation, which led to a deep recession.
On the earnings front, LSEG says 16 S&P 500 companies will report this week. Of the 459 S&P companies that have reported Q2 results, 80.2% have beaten profit expectations.
The consumer names will be in focus with Home Depot (HD) on Tuesday, Lowe’s (LOW) and Target (TGT) on Wednesday and Dollar Tree (DLTR) and Walmart (WMT) on Thursday.
Walmart is expected to post EPS of $0.74 on revenue of $174.21 billion. Following a more difficult backdrop to start this year, due to unexpected tariff and expense headwinds, analysts believe a positive guidance revision cycle could again materialize soon. Oppenheimer analysts have lifted their Q2 constant currency sales projection to reflect the potential for stronger top-line momentum.
On the bull side, SA analyst Skeptical12 says “the retailer continues to benefit from an uncertain and high price environment that should persist for some time. The company’s strong balance sheet and impressive cash flow also give management significant flexibility to maximize shareholder returns as well.”
But for the bears, SA analyst George Atuan says “Walmart’s defensive strengths are now fully priced in, with the stock trading at historic highs despite only modest fundamental growth and thin margins.”
Also on the earnings calendar:
Monday brings numbers from Palo Alto Networks (PANW), Fabrinet (FN), Agora (API) and Blink Charging (BLNK).
Joining Home Depot on Tuesday are Medtronic (MDT) and Keysight Technologies (KEYS).
Analog Devices (ADI) and Baidu (BIDU) weigh in with Target and Lowe’s on Wednesday.
Walmart and Dollar Tree are joined by Intuit (INTU), Workday (WDAY) and Zoom Communications (ZM) on Thursday.
In the news this weekend, European heads of state will stand alongside Ukrainian President Volodymyr Zelenskiy in Washington on Monday as he faces pressure from President Donald Trump to strike a rapid peace deal with Russia that would involve ceding territory.
Confirmed attendees include European Commission President Ursula von der Leyen, NATO’s Mark Rutte, Germany’s Friedrich Merz, the UK’s Keir Starmer, France’s Emmanuel Macron, Finland’s Alexander Stubb, and Italy’s Giorgia Meloni. Their presence underscores Europe’s effort to back Zelenskiy while preparing new security guarantees for Kyiv.
The talks follow Trump’s meeting with Vladimir Putin in Alaska, where the president indicated he would press Zelenskiy to accept a land-for-peace arrangement and suggested Moscow might agree to a security framework outside of NATO. European officials remain doubtful that Putin is serious about ending the war, now entering its fourth year.
And Meta (META) is planning to go ahead with its fourth reorganization of its artificial intelligence initiatives in six months.
The Information says the company is aiming for four subdivisions within its new AI unit, Superintelligence Labs, which Meta launched recently under the leadership of Alexandr Wang, former CEO of data labeling startup Scale AI.
A new “TBD Lab,” and a products team including the Meta AI assistant will be organized under Superintelligence Labs.
And for income investors, ConocoPhillips (COP) and Wynn Resorts (WYNN) go ex-dividend on Monday. ConocoPhillips pays out on Sept. 2 and Wynn pays out on August 29.
Microsoft (MSFT) and Applied Materials (AMAT) go ex-dividend on Thursday. Both pay out Sept. 11.