Powell's Jackson Hole Speech to Steer Fed's Easing Path

Good Morning Investors,

All eyes turn to Jackson Hole. Chair Powell's Friday keynote is set to be the fulcrum for markets, with futures pricing an 85% probability of a September cut. The question is no longer if the easing cycle begins, but how fast and how deep. After last week’s hotter PPI and firmer services CPI, Powell must articulate a glide path that balances the Fed’s dual mandate without rattling risk assets. History reminds us that his Jackson Hole platform has shifted narratives before: in 2022 to underscore inflation-fighting resolve, in 2023 to defend the labor market. This year, caught squarely between both, Powell faces his most delicate balancing act yet.

Futures are modestly weaker to start: Dow ($DIA ( ▲ 0.02% )) -0.21%, S&P 500 ($SPY ( ▼ 0.27% )) -0.13%, Nasdaq 100 ($QQQ ( ▼ 0.59% )) -0.05%. This follows a broadly positive week in which small caps surged more than 3% and the equal-weight Consumer Discretionary index hit record highs, which is a pointed rebuttal to the stagflation narrative. Markets absorbed both CPI and PPI surprises, choosing to interpret inflation firming as transitory or at least non-structural. That resilience itself is the message.

Global markets echo the same tone. Europe’s STOXX 600 sits flat ahead of Trump’s meeting with Ukrainian and European leaders. Japan’s Nikkei closed at record highs, aided by yen weakness, while Chinese equities reached their strongest level since 2015 on easing trade tensions and ample liquidity. Oil prices climbed after Washington pressed India to halt Russian crude purchases, while gold inched higher on pre-Jackson Hole caution.

Friday’s address may be Powell’s last from Jackson Lake Lodge as Fed chair, adding legacy weight. His career has been defined less by grand theory than by pragmatic risk management, a posture rooted in his admiration for Greenspan’s mid-90s “wait and see” approach.

Markets have scaled back expectations of a 50bp move after last week’s inflation data but remain anchored to a 25bp cut in September. Wednesday’s Fed minutes will provide key detail on the dissenting votes of Waller and Bowman and help gauge tolerance for near-term inflation volatility.

The Fed’s dilemma is stark: services inflation, untethered from tariffs, shows signs of firming, while labor-market revisions point to slowing momentum beneath the surface. Powell’s challenge is to justify easing into this divergence without compromising credibility.

July retail sales rose 0.5% after June’s 0.9% gain, underscoring resilient consumer demand despite tariff noise. This week’s retail earnings will test whether confidence is stabilizing or eroding.

Beyond earnings, tariffs are already reshaping holiday spending. Importers are scaling back orders of Christmas trees and holiday décor, foreshadowing fewer options and higher prices. In a season that typically drives margins, retailers now face compressed choice and stretched consumers.

Last week’s quiet leadership handoff, healthcare and homebuilders catching a bid as megacap momentum paused, is precisely what sustains bull markets. Rotation within equities, rather than wholesale selling, affirms the soft-landing base case.

Nvidia’s ($NVDA ( ▼ 0.14% )) August 27 earnings remain the single-stock event that could reignite or test the AI trade, but the broader pattern suggests investors are diversifying exposures, not abandoning risk.

Last week’s positioning moves centered on reducing mega-cap concentration risk while maintaining conviction in the underlying AI transformation. We rotated into a more equal weight S&P approach, preserving targeted exposure to specific areas of technology while increasing allocation to mid-cap and small-cap names positioned for potential Fed accommodation.

The Healthcare addition represents a small starter position, aided by Warren Buffett's revelation that Berkshire Hathaway acquired a stake in UnitedHealth Group in their most recent 13F filing. We’d been systematically trimming the tech exposure built since April’s lows and identified an opportunity for short-term outperformance in equal-weight, mid- and small-cap segments that typically benefit from rate cut cycles.

Healthcare, particularly through IYH, looked compelling given how severely beaten down the sector has been while still maintaining exposure to quality underlying names. We took a broader approach, giving the portfolio a slight overweight to the sector while maintaining core conviction in AI infrastructure for 2025.

The timing aligns with my expectation that any market pullback this year will likely occur in September into October before a year-end rally that drives us toward the $6,500 S&P target. This tactical positioning provides better risk-adjusted exposure while maintaining upside participation in both the AI theme and broader market recovery.

This Week’s Key Events

Markets rising on hotter inflation data is not complacency, it’s positioning. Investors are signaling that tariff-related inflation is viewed as episodic, not structural. Meanwhile, sentiment surveys remain surprisingly cautious, even as indices notch record highs. That tension between muted psychology and strong price action, is the hallmark of durable bull markets.

Powell’s likely final Jackson Hole speech carries symbolic weight, but the practical takeaway is clear: slowing growth risk outweighs inflation persistence. Rate cuts are coming. Any volatility this week is an opportunity to lean into companies with durable pricing power, strong balance sheets, and exposure to secular drivers like AI infrastructure, healthcare quality, and energy security.

This market continues to reward those who stay invested in America’s innovation cycle and punishes those waiting for a perfect setup.

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Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.