Learning from history, the Jackson Hole Symposium is more likely to help boost the stock market

According to DataTrek Research, the US stock market has historically risen during the annual Jackson Hole Economic Policy Symposium of the Federal Reserve. Federal Reserve Chairman Powell will deliver a speech on Friday, and investors will closely watch this meeting.

Nicholas Colas, co-founder of DataTrek, stated in a briefing sent via email on Monday: "The S&P 500 Index (SPX) tends to rebound in the two weeks before and after the Federal Reserve's Jackson Hole meeting, mainly after the Fed Chairman's speech. We expect the same pattern to occur this year."

The Jackson Hole Economic Policy Symposium will be held in Jackson Hole, Wyoming from August 22nd to 24th, bringing together central bankers and economists. Powell is scheduled to speak at the conference on Friday night at 10 p.m. Beijing time.

DataTrek's data shows that since 2010, the average return of the S&P 500 Index, which measures the performance of US large-cap stocks, in the two weeks before and after the Jackson Hole meeting is 0.9%. Colas said, "The Federal Reserve Chairman does not always attend the meeting, as shown in the table below over the years."

DataTrek points out that the significant decline in the S&P 500 Index before and after the 2022 Jackson Hole meeting was due to it being an "exceptional year for the Federal Reserve to adopt aggressive monetary policy," with the Fed raising interest rates to curb high inflation.

Colas mentioned that Powell's speech at Jackson Hole in 2022 "surprised the market" as he signaled that the Fed would do whatever it takes to lower inflation. Powell also warned at the time that higher rates could cause "some pain for households and businesses" as Fed tightening could slow economic growth and weaken the labor market.

Currently, investors expect the Fed to cut interest rates as inflation has significantly eased, and recent weakness in the US job market has heightened concerns about the economy.

Colas said, "Market expectations for a Fed rate cut later this year are very high. Powell should provide enough confidence to the market on this issue this Friday, leading to the typical rally triggered by the Jackson Hole Symposium in the next two weeks."

Dow Jones market data shows that the S&P 500 Index rebounded strongly last week, closing 2% below the record high set on July 16th by the end of last Friday. US stocks rebounded after a sharp drop earlier this month triggered by concerns over disappointing job reports.

Colas noted that Powell "is aware that the market has just experienced turbulent weeks, so he will choose his words carefully" ahead of the highly anticipated Jackson Hole speech.

Meanwhile, based on DataTrek's data, at least from recent earnings conference calls of companies, they do not seem too concerned about an imminent economic recession. Colas pointed out that 6% of S&P 500 index component companies mentioned "economic recession" in their phone calls with investors and analysts regarding the second-quarter financial reports, a "relatively low" proportion.

Colas said, "Rather than being an economic observation, this is more of a signal indicating that the company management remains confident in the recent profit capabilities of the company. If there is a need to find excuses for poor earnings or lower forward guidance, we will definitely hear more about the imminent economic recession."

In contrast, DataTrek cited FactSet data stating that during the economic recession triggered by the pandemic in the first quarter of 2020, 42% of S&P 500 index component companies mentioned "recession" in investor conference calls, as shown in the figure below.

DataTrek's report shows that during the "technical recession" period in the first half of 2022 in the United States, the Gross Domestic Product (GDP) experienced "negative growth" for two consecutive quarters, with the mention rate of "recession" reaching a peak of 47% in the second quarter of that year.

Colas mentioned that although the U.S. economy "clearly did not experience" a recession as defined by the National Bureau of Economic Research, the mention rate of "recession" remains high for the rest of 2022. He pointed out that this is because S&P 500 index component companies are using "economic recession" as an excuse for profit contraction.

On Thursday, investors will see the preview values of this month's U.S. manufacturing and service sectors from the Standard & Poor's Global Purchasing Managers' Index (PMI). Weekly data on initial jobless claims in the United States will also be released on the same day.

Colas said, "The initial claims report from last Thursday reassured the market that there are no issues with the labor demand in the United States, allowing Powell to send a message of confidence in the U.S. economy."