Will there be a stock market crash in Jackson Hole this week?

Stock market investors will be cautious for most of next week, ahead of a much-anticipated Friday speech by Jerome Powell at the Global Central Banking Conference in Jackson Hole, Wyoming.

The Federal Reserve Chairman’s address will open the event at 10 a.m. EDT and focus on the outlook for inflation and rates.

It has been tipped that Powell will reiterate his inflation concerns and call off speculation about an early dovish policy pivot.

If Powell does, it could end a recent rally in growth stocks, fueled by speculation that inflation has peaked and that the Reserve Bank will end the tightening cycle prematurely.

“Mr. Van Powell is widely expected to argue against the arguably premature easing of financial conditions that has occurred since the July meeting, in an effort to better align market forecasts with the central bank’s own final interest rate projections. We believe that Powell will also work to lower expectations for a “pivot” in early 2023.” said Corpay chief market strategist Karl Schamotta

“A long history of policy reversals has led investors to believe that the same cycle will play out this time, with the central bank raising interest rates only to cut them when the economy slows. Inflation has likely already peaked – and negative year-on-year prints may come at some point – but inertia forces make a return to pre-pandemic price trends highly unlikely. Once interest rates reach near neutral levels (still well below historical norms), fears of a rebound in inflation should prevent a return to a stimulative framework.”

The president of Bianco Research, James Bianco, says he thinks Jackson Hole’s speech will give stock investors more clarity about the economic outlook.

“The market cannot decide whether the Fed will increase 50 or 75 bps next month. If it fluctuates above and below 50% and never strays far from 50/50. It should become clearer after Powell speaks in Jackson Hole this Friday,” Bianco said.

Stock Market Response to Jackson Hole’s Past Speeches

This year’s Jackson Hole conference title is: Reassessing constraints on the economy and policy.

It will be Jerome Powell’s fifth appearance at the conference in consecutive years.

So, how has the market reacted in previous years? Here’s the daily move in the S&P 500 on each of Jerome Powell’s previous Jackson Hole speeches.

Speeches by Jerome Powell at Jackson Hole S&P 500
2021 – Friday 27 August +0.88%
2020 – Thursday 27 August +2.57%
2019 – Friday 23 August -2.59
2018 – Friday 24 August +0.62%

The bottom line: If Powell expresses concern about the magnitude of the inflation problem and speaks loudly about further rate hikes and monetary policy tightening, there could be a mini-crash in the stock market on Friday if the renewed investor confidence of recent weeks gets dented.

However, if Powell gives any indication that he thinks the worst of the inflation problem may be over and monetary policy can be eased in 2023, the stock market could just soar.

However, the latter seems the most unlikely.

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