Record High Dividends

By Nicholas Jasinski  |  Thursday, August 25

Fedspeak. Stocks surged into the close today to cap a broad rally. The S&P 500 gained 1.4% as all 11 sectors closed in the green and 465 of its constituents rose. The Dow Jones Industrial Average added 1% today and the Nasdaq Composite closed up 1.7%. The indexes remain down for the week after their declines on Monday and Tuesday.

Tomorrow's main event will be a speech from Federal Reserve chairman Jerome Powell at the Jackson Hole Economic Symposium, beginning at 10 a.m. Eastern time. The stirring theme of the conference this year is "Reassessing Constraints on the Economy and Policy."

Commentators this week have generally been of the view that Powell will take a hawkish tone in his remarks, seeking to push back against the recent narrative that the Fed will back off of interest rate hikes sooner rather than later. That shift in expectations toward relatively easier monetary policy has prompted rallies in stocks and bonds since June.

Powell could emphasize that the Fed won't give up the fight against inflation that easy, as he and other officials have in their latest remarks. Should he make his points convincingly enough, futures markets would move to price in more Fed interest rate hikes, bond yields would rise, and stocks would likely fall.

But Amherst Pierpont Securities' chief economist Stephen Stanley​ points out that markets' interpretation of Powell's remarks can go the opposite way. He wrote to clients today:

The last three times in a row that Chairman Powell has spoken, financial market participants have taken it quite dovishly. To review, in the press conference after the June [Federal Open Market Committee] meeting, Powell said that the 75 [basis point] rate hike taken at the meeting was unlikely to be “common” and that the Fed would “make our decisions meeting by meeting.” Even with a sharp increase in the FOMC’s dot projections, Powell’s message was taken as a suggestion that the Fed was getting closer to the end of the tightening cycle. The June 2023 fed funds futures contract rallied 18 BPs on the day and a cumulative 30 BPs for the rest of the week.

A week later, at his semi-annual Congressional monetary policy testimony, Powell acknowledged that a recession was possible as the Fed raised rates to battle inflation. The June 2023 fed funds futures contract rallied 20 BPs on the day and a cumulative 30 BPs over the rest of week.

Finally, in the post-FOMC press conference on July 27, Chairman Powell suggested that policy was roughly neutral and that the Committee was likely to slow the pace of increases at some point going forward. The June 2023 fed funds futures contract rallied by 6½ BPs on the day and a cumulative 11 BPs over the rest of the week.

In all three instances, that's despite no shortage of hawkishness from Powell, driving home the point that the Fed was focused on getting the rate of inflation down to its 2% annual target.

Don't expect a pivot on that front tomorrow morning. Also don't be surprised if the highly anticipated remarks from Powell don't live up to this week's sky-high expectations.

DJIA: +0.98% to 33,291.78
S&P 500: +1.41% to 4,199.12
Nasdaq: +1.67% to 12,639.27

The Hot Stock: NetApp +7.9%
The Biggest Loser: Dollar Tree -10.2%  

Best Sector: Materials +2.3%
Worst Sector: Consumer Staples +0.5%