“An investment in knowledge pays the best interest.”
-Benjamin Franklin
Here’s what you need to know this week:
- Markets rise after Federal Reserve Chairman Jerome Powell confirms that interest rate cuts are coming
- Two critical economic reports arrive later this week
Finish Line
Stocks rose across the board on Friday after getting the strongest confirmation yet that interest rate cuts are imminent. Federal Reserve Chairman Jerome Powell spoke Friday morning at the Fed’s annual symposium in Jackson Hole, Wyoming, and said that “the time has come for policy to adjust”[1]. Powell went on to say that he is confident that inflation is on track to return to its long-term average of 2%, and that the Fed will continue to monitor economic data to determine the timing and size of rate cuts[2].
The “big three” stock indices (the S&P 500, NASDAQ and Dow Jones) all rose on the news. The Dow Jones actually hit a new all-time high:
(source: Bloomberg)
As of writing, the S&P 500 is less than 1% from its own all-time high, while the more volatile NASDAQ still sits about 5% from its own high. Another interesting data point is small cap stocks, which are typically more sensitive to interest rate moves. The Russell 2000 index measures 2,000 small cap US stocks and is a pretty good barometer for the small cap market; on Friday, the Russell 2000 rose nearly 3% in response to Powell’s speech:
(source: Bloomberg)
This shows that investors are confident that rate cuts are finally coming. As long as economic data continues to support rate cuts, we may see more of a rotation into interest rate-sensitive sectors in the coming months.
One-Two Punch
Speaking of economic indicators, we have two important reports coming later this week. The first report is the estimate for US Gross Domestic Product (GDP) for the second quarter. GDP is a measure of an economy’s total growth and economic output. Analysts expect the report to show GDP growing at a 2.8% annualized rate[3], which would indicate a strong and growing economy. This is one of the reports that the Fed watches closely; their desired “soft landing” requires defeating inflation without slowing the economy too much, so a lower-than-expected print may give them more of an impetus to cut interest rates faster.
Second is the Personal Consumption Expenditures (PCE) index which will be released on Friday. This is the Federal Reserve’s preferred measure of inflation. Analysts expect this month’s report to show inflation at a 2.6% annualized rate[4]; if the report comes in as expected or light then markets are likely to react favorably, as this would also provide more evidence that the time for rate cuts has come.
What Else
- Israel and Hezbollah both deescalated on Monday after firing missiles at each other over the weekend
- Vice President Kamala Harris officially accepted the Democratic nomination for President at the Democratic National Convention in Chicago
- Robert F. Kennedy Jr. suspended his campaign and endorsed former President Trump
- OU plays their season opener against Temple at 6:00 PM CT this Saturday on ESPN
- OSU plays their season opener against South Dakota State at 1:00 PM CT this Saturday on ESPN+
What We’re Reading
Two astronauts have been stuck on the International Space Station for months after encountering errors during a test flight of Boeing’s new Starliner space ship. NASA now says the astronauts will have to remain on the space station until early next year when a SpaceX capsule will be able to bring them home. Click below to read about the astronaut’s voyage and how they spend their days living in outer space:
What’s Happening Downtown
The Oklahoma Opry is hosting Artistic Development Night this Friday, August 30th at the ACM Live Room in Bricktown. This event features up and coming local artists, tickets are $10 and the event begins at 7:00 PM. Click below to learn more:
To read more from our blog, click here
Written by: Kane Ogle, CFP®
Steve Beck, Amber Eduvigen, CFP®, Kane Ogle, CFP®, Cale Olbert, CFP®, Brett Valentine, Brandon Ingerson, Jenni Hess, Anne Boone
Sources: [1] Bloomberg; [2] New York Times; [3] Investing.com; [4] Forbes