Market Snapshot
briefing.com
| Dow | 32460.49 | -833.17 | (-2.50%) | | Nasdaq | 12214.55 | -424.68 | (-3.36%) | | SP 500 | 4079.34 | -119.85 | (-2.85%) | | 10-yr Note |
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| | NYSE | Adv 379 | Dec 2607 | Vol 801 mln | | Nasdaq | Adv 784 | Dec 3310 | Vol 4.4 bln |
Industry Watch
| Strong: -- |
| | Weak: Communication Services, Information Technology, Real Estate, Materials |
Moving the Market
-- Disinflation in July PCE Price Index
-- Fed Chair Powell's speech at Jackson Hole
-- Rising Treasury yields
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Closing Summary
26-Aug-22 16:20 ET
Dow -1008.30 at 32285.36, Nasdaq -497.56 at 12141.67, S&P -141.46 at 4057.73
[BRIEFING.COM] After some whipsaw action immediately following Fed Chair Powell's speech today, the market trended decidedly lower into the close. The market opened to only modest losses after a welcomed moderation in the July PCE Price Index before Mr. Powell's comments fueled a negative disposition. Market participants got the impression that the Fed is going to keep raising rates to a restrictive level and won't be pivoting to a rate-cut cycle anytime soon. Notably, Mr. Powell said the effort to reduce inflation "will also bring some pain to households and businesses."
The major indices logged most of their weekly losses during this session. The S&P 500 closed down 4.0% on the week; the Dow Jones Industrial Average closed down 4.2% on the week; the Nasdaq closed down 4.4% on the week.
Most stocks sold off today leading every S&P 500 sector to close with losses that ranged from 1.0% (energy) to 4.1% (information technology). The technology sector was driven lower by its semiconductor components, which sold off more sharply than the broader market. The PHLX Semiconductor Index closed down 5.5%.
Energy had the slimmest losses with WTI crude oil futures settling 0.1% higher at $93.13/bbl. Notably, it's the only sector with gains on the week, up 4.3%.
Mega caps and growth stocks closed with somewhat steeper losses than their peers, but selling interest was broad-based and left the major indices down by 3.0% or more. Notably, the Dow Jones Industrial Average fell more than 1,000 points today.
The Vanguard Mega Cap Growth ETF (MGK) closed down 4.1% versus a 3.2% loss in the Invesco S&P 500 Equal Weight ETF (RSP). The Russell 3000 Growth Index closed down 3.6% versus a 2.7% loss in the Russell 3000 Value Index.
While most stocks trended lower, the CBOE Volatility Index moved markedly higher, up 17.5% or 3.80, to 25.58.
Market breadth showed a strong skew towards decliners with the margin increasing throughout the session. Shortly after Fed Chair Powell's speech concluded, decliners led advancers by a 5-to-1 margin at the NYSE and a roughly 3-to-1 margin at the Nasdaq. At the close, decliners led advancers by a nearly 7-to-1 margin at the NYSE and a greater than 4-to-1 margin at the Nasdaq.
The Treasury market had a volatile session. Participants first reacted positively to relatively pleasing PCE Price Index data before they had a less bullish reaction to Mr. Powell's comments. The 2-yr note yield rose one basis point on the day, and 15 basis points on the week, to 3.40%. The 10-yr note yield rose one basis point on the day, and five basis points on the week, to 3.04%.
There is no U.S. economic data of note on Monday.
Reviewing today's economic data:
- Personal income increased 0.2% month-over-month in July (Briefing.com consensus +0.6%) following an upwardly revised 0.7% increase (from 0.6%) in June. Personal spending rose just 0.1% month-over-month (Briefing.com consensus +0.4%) following a downwardly revised 1.0% increase (from 1.1%) in June.
- The PCE Price Index declined 0.1% month-over-month (Briefing.com consensus +0.1%), which left it up 6.3% year-over-year versus 6.8% in June. The core PCE Price Index, which excludes food and energy, increased 0.1% month-over-month (Briefing.com consensus +0.3%), which left it up 4.6% year-over-year versus 4.8% in June.
- The key takeaway from the report was the disinflation seen in the PCE Price Indexes, and the boost, albeit a small one, in real spending that will be positive for Q3 GDP forecasts.
- The final August University of Michigan Index of Consumer Sentiment checked in at 58.2 (Briefing.com consensus 55.1). That was better than the preliminary reading of 55.1 and up from the final July reading of 51.5. In the same period a year ago, the Index of Consumer Sentiment stood at 70.3.
- The key takeaway from the report is that the gains in sentiment were broad based and aided by the recent deceleration in inflation that coincided with falling gasoline prices.
Dow Jones Industrial Average: -11.2% YTD
S&P 400: -12.0% YTD
S&P 500: -14.9% YTD
Russell 2000: -15.4% YTD
Nasdaq Composite: -22.4% YTD
Market extends losses into the close
26-Aug-22 15:30 ET
Dow -881.99 at 32411.67, Nasdaq -445.89 at 12193.34, S&P -124.59 at 4074.60
[BRIEFING.COM] The market remains near session lows heading into the close.
Market breadth favors decliners by a nearly 7-to-1 margin at the NYSE and a 9-to-2 margin at the Nasdaq.
The 2-yr note yield rose one basis point on the day, and 15 basis points on the week, to 3.40%. The 10-yr note yield rose one basis point on the day, and five basis points on the week, to 3.04%.
There is no U.S. economic data of note on Monday.
Market continues to drift lower
26-Aug-22 15:00 ET
Dow -833.17 at 32460.49, Nasdaq -424.68 at 12214.55, S&P -119.85 at 4079.34
[BRIEFING.COM] The major averages continue to drift lower.
Mega cap stocks have fallen behind the broader market. The Vanguard Mega Cap Growth ETF (MGK) now trades down 3.4% versus a 2.7% loss in the S&P 500 and a 2.6% loss in the Invesco S&P 500 Equal Weight ETF (RSP).
Notably, energy (-0.6%) is the only sector down by less than 1.0%. WTI crude oil futures turned positive on the day, up 0.7% to $93.15/bbl. Natural gas futures are down 0.7% to $9.28/mmbtu.
The CBOE Volatility Index continues to climb higher, up 12.1% or 2.64 to 24.42.
HP Inc. underperforms ahead of next week's earnings
26-Aug-22 14:30 ET
Dow -752.17 at 32541.49, Nasdaq -405.48 at 12233.75, S&P -109.19 at 4090.00
[BRIEFING.COM] The S&P 500 (-2.60%) remains firmly in second place on Friday afternoon.
S&P 500 constituents HP Inc. (HPQ 31.73, -2.74, -7.95%), V.F. Corp (VFC 41.53, -2.52, -5.72%), and Teradyne (TER 91.33, -5.00, -5.19%) are among today's top decliners. HPQ slips ahead of next week's earnings in part due to PC market caution comments out of Dell (DELL 42.34, -5.56, -11.61%), while weakness in semis -- including TER -- stems from some cautious commentary from Marvell (MRVL 50.36, -4.73, -8.59%) in its earnings report.
Meanwhile, Molina Healthcare (MOH 341.70, +14.20, +4.34%) is one of the better performers on Friday following news that California's Department of Health Care Services intends to award select managed care plans in relation to the state's Medi-Cal program.
Gold falls following Powell comments
26-Aug-22 14:00 ET
Dow -714.72 at 32578.94, Nasdaq -382.27 at 12256.96, S&P -103.30 at 4095.89
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-3.02%) sits firmly in last place among the major averages.
Gold futures settled $21.60 lower (-1.2%) to $1,749.80/oz in light of comments from Fed Chair Jerome Powell's comments about policy tightening.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $108.82.
Domo's new go-to-market strategy is misfiring, causing a loss of confidence among investors (DOMO)
Domo (DOMO), the operator of a mobile-based platform that connects employees, data, and systems together, is plummeting to its lowest levels since early 2020 in the wake of its Q2 earnings report. The company surpassed bottom-line expectations and revenue barely missed analysts' estimates, but a weak outlook has investors running for the exits.
Not only did DOMO ratchet its FY23 revenue guidance lower to $305-$310 mln from $315-$319 mln, but it's also forecasting Q3 billings growth to slow to a pedestrian 2.6% yr/yr. In Q2, DOMO's billings grew by 21% yr/yr to $72.3 mln.
For John Mellor, who was just appointed as DOMO's new CEO this past March after serving as Chief Strategy Officer, the bleak outlook and accompanying plunge in the stock price can't be easy to swallow. Making matters worse, Mellor divulged during the earnings conference call that it experienced a spike in employee turnover in the sales team, negatively impacting its sales capacity. This turnover seems to be related to a change of strategy spearheaded by Mellor as the company shifts its focus towards winning smaller corporate deals.
Today's weakness may have more to do with an erosion of investor confidence, rather than the actual guidance itself. A few key points from the conference call left us feeling a bit uneasy about DOMO's prospects, making us wonder if it will have trouble even meeting its downgraded revenue outlook.
- On the enterprise side of the business, DOMO is entering Q3 will less sales capacity than it originally planned due to the rep turnover. The company has realigned its resources and priorities to drive stronger growth from corporate accounts, which typically require less time and costs to secure. Of course, the problem with this approach is that smaller customers have less capital to spend over the lifetime of a contract, limiting DOMO's up-selling and cross-selling opportunities.
- This situation may already be presenting itself in the form of a disappointing gross retention rate that's below 90%, partly due to the insolvency of some of DOMO's smaller customers.
- Logically, it stands to reason that DOMO wouldn't be shifting its attention away from more lucrative enterprise deals if it was having consistent success in that arena. Although Mellor was adamant that the value proposition of DOMO's platform remains strong for enterprises, it's understandable if some investors are questioning the competitiveness of its offering.
- With enterprise currently representing about half of DOMO's recurring revenue, the decision to back away from that market will have significant top-line repercussions. The trade-off is that the company believes it can drive higher growth in a more efficient manner since corporate deals are less costly to close.
- In addition to realigning its sales force, DOMO is implementing a cost reduction plan "across the board", which will further reduce its sales capacity in the near term.
- On the positive side, the action positions the company to move closer to positive non-GAAP operating income and stronger cash flow generation.
Investors are clearly not enamored with DOMO's new go-to-market strategy, and we can't necessarily blame them. It's probably not fair to say that DOMO is "waving the white flag" on the enterprise side, but its decision to reallocate resources away from that business does not come off as a winning move. Perhaps the company will ultimately prove the skeptics wrong. In the near term, though, it seems safe to say that this transition will continue to be a painful one.
Gap trades slightly lower after initial enthusiasm regarding its turnaround strategies fizzle (GPS)
Following a bit of a rollercoaster ride to begin today's trading session, shares of Gap (GPS) are trading lower today despite the apparel retailer posting upside on its top and bottom lines in Q2 (Jul). Shares did initially pop in early trading, likely due to enthusiasm surrounding GPS's strategy to kickstart its turnaround efforts. However, after the smoke cleared, it was apparent that GPS's turnaround would be no simple task. Additionally, the company withdrew its FY23 outlook due to many headwinds, including being amid a turnaround, a CEO transition, and an uncertain macro-environment, making it difficult to provide an accurate forecast.
The company's primary strategy in the near term is to reduce its inventory, rebalance its assortments, and fortify its balance sheet. GPS is targeting negative inventories yr/yr by the end of FY23. The company has already begun to write off unproductive inventory in Q2, positioning its stock to better capitalize on seasonal core items. GPS also trimmed or deferred some capital spending while reducing the number of new Old Navy stores slated for the back half of the year. As a result, GPS expects $50 mln less in CapEx than its prior estimate of $700 mln.
Regarding GPS's hunt for a new CEO, Executive Chairman and interim CEO Bobby Martin did not provide too many details, only that the Board is actively evaluating potential candidates and is working swiftly to find a qualified individual.
- Turning to Q2 numbers, adjusted EPS of $0.08 and revs of $3.86 bln, a decline of 8.4% yr/yr, both topped estimates. However, comparable store sales of -10% came up short of analyst expectations.
- GPS's historically solid Old Navy banner continued to experience declining sales growth in the quarter. After a 19% drop yr/yr in Q1 (Apr), Old Navy's sales fell 13% in Q2 to $2.1 bln, lagging all other banners in the quarter. Old Navy's woes were an extension of those discussed last quarter, including a pullback in spending by lower-income consumers and assortment imbalances.
- GPS remains bullish on Old Navy's value proposition going forward, mentioning that it is the #2 brand in the apparel market by share and remains its foothold for acceleration and expansion.
- The Gap banner also saw sales fall in Q2, slipping by 10% yr/yr to $881 mln.
- A few bright spots stemmed from the Banana Republic and Athleta banners, which saw revs jump by 9% and 1% yr/yr, respectively.
However, these silver linings are not peaking through an otherwise dark and cloudy quarter. In addition to turning around the business, GPS is dealing with other headwinds, such as cost inflation, which drove an 850 bp contraction in merchandise margins in Q2, and consumer inflation, which is spurring many of GPS's customers to trade down. Although GPS's initiatives are ambitious, we continue to believe the right strategy at the moment is to wait until results improve.
Dell lower on Q2; cautious comments on enterprise was a surprise following CSCO bullishness (DELL)
Dell (DELL -10%) is computing some losses despite reporting upside with its Q2 (Jul) earnings report last night. It was not the monster EPS beat we saw in Q1, but it was still pretty good upside. Revenue was more in-line, but it was a record at $26.4 bln with growth in both operating segments. The problem has more its more cautious outlook heading into the second half of the fiscal year, which was a bit surprising following Cisco's relatively upbeat outlook last week.
- What stood out to us is that both of Dell's operating segments posted good revenue growth rates: Infrastructure Solutions Group (ISG) grew 12% yr/yr to $9.54 bln, while its much larger Client Solutions Group (CSG) segment grew 9% yr/yr to $15.49 bln. Most people know Dell for its consumer PCs, but it has much higher exposure to the enterprise market.
- Within ISG, servers and networking sales remained strong with 16% growth, but storage rose just 6%. On the CSG side, its much larger Commercial vertical performed well with 15% sales growth but the smaller Consumer side fell 9%. The weakness in Consumer is not entirely surprising given a lot of news reports that PC sales have slowed and given that Dell was lapping stimulus-fueled PC purchases a year ago.
- However, what is really weighing on the stock was some bearish commentary on the call. Specifically, management says that the 2H demand environment has worsened since its last earnings call in May. Demand has slowed, particularly in CSG. Dell saw PC demand decline as it went through the quarter. Fortunately, higher ASPs were able to partially offset a decline in unit sales.
- The demand picture on the ISG side was not quite as dire, but not great either. Dell says the Q2 and 2H macro dynamics at ISG have become more challenging as customers are taking a more cautious view of their needs given the uncertainty. Dell has responded by managing inventories down and reducing expenses.
Overall, Dell posted a solid Q2 despite multiple headwinds. It was mainly the cautious outlook heading into the second half of the year that is spooking investors a bit. Also, while the PC market slowing was expected, we think investors are reacting more to the somewhat cautious comments on the ISG side, which is more enterprise-based. It was a bit of a surprise because Cisco (CSCO) was more bullish with its demand outlook last week. Cisco specifically said it had not seen a material change in demand related to enterprise spending. So to hear Dell talk about enterprises being more cautious surprised investors a bit. Finally, we think this report makes us more cautious on Ciena (CIEN) and HP (HPQ), which are both set to report next week.
Affirm is denied by investors after BNPL leader issues weak outlook as economic factors weigh (AFRM)
At this time last year, the buy now, pay later (BNPL) trend was red-hot, making Affirm (AFRM) a fan favorite among growth stock investors. From late August 2021 through early November, shares skyrocketed by as much as 135%, taking AFRM to all-time highs. That exuberance, however, was short-lived as growth stocks fell out of favor in dramatic fashion due to rising interest rates and intensifying inflationary pressures. The macroeconomic fallout from those two factors played a key role in AFRM's disappointing Q4 earnings report, which included weak revenue and gross merchandise volume (GMV) guidance for 1Q23 and FY23.
CEO Max Levchin didn't sugarcoat the situation, stating that the economy is most likely in the beginning stages of a downturn, adding that it's too early to decipher how deep it will be. Accordingly, AFRM is taking a cautious approach, particularly as it relates to risk management and its credit posture. This means that the company plans to dial back its loan origination activity as it tightens approval standards, creating a headwind to GMV growth.
For FY23, AFRM is forecasting GMV of $20.5-$22.0 bln, equating to yr/yr growth of 32-42%, compared to growth of 87% for FY22. The outlook also fell well short of expectations, as did AFRM's Q1 and FY23 revenue guidance of $345-$365 mln and $1.625-$1.725 bln, respectively. AFRM's gloomy outlook isn't overly surprising, though, since it comes on the heels of a downbeat outlook from consumer lending company Upstart (UPST) earlier this month.
While the soft guidance is understandably the center of investors' attention this morning, there were a few other important takeaways from the report.
- Given the increasing strain on consumers' finances, there's a growing concern surrounding credit performance and delinquencies (DQs). The start of FY23 has seen an uptick in DQs and DQs are approaching the highest levels over the past few years. Specifically, DQs of 30+ days as a percentage of active balances (excluding split pay) is nearing 3%.
- CFO Michael Linford acknowledged that the company began seeing signs of stress during the quarter, particularly among the low credit segment of consumers. However, he also tried to soothe concerns by stating that AFRM is entering a seasonal peak period for DQs and that AFRM's DQ levels are healthy.
- At first glance, the $72.7 mln increase in AFRM's provision for credit losses looks a bit alarming, suggesting that the company is anticipating a wave of loan defaults. A closer look reveals that the year-earlier period included the release of COVID-related allowances, skewing the yr/yr comparison.
- Compared to Q3, provision for credit losses increased by just 10%, and, as a percentage of GMV, it actually declined by 4 bps sequentially.
- Still, the yr/yr increase in provision for credit losses did weigh on total revenue less transaction costs, which was up by 25% versus 37% last quarter. For FY23, AFRM is forecasting transaction costs (loss on loan purchase commitment, provision for credit losses, funding and processing costs) to increase by 26-33% to $865-$915 mln.
- AFRM's unit economics -- or revenue less transactions costs as a percentage of GMV -- remained strong at 4.3% in Q4. That's well above the company's long-term target of 3-4%. However, AFRM's FY23 guidance ranges suggest that unit economics will soften in FY23 to about 3.8%.
There's a lot of ground to cover with AFRM's results and outlook, but the main takeaway is that macroeconomic conditions are slowing its growth, while simultaneously raising its risk profile. At this point, it's too early to panic about delinquencies or funding availability/costs. If economic conditions do become more difficult, though, concerns regarding AFRM's balance sheet could deepen.
Ulta Beauty's JulQ numbers glowed, helping propel shares toward YTD highs today (ULTA)
Ulta Beauty (ULTA +1%) is sitting pretty today after delivering its ninth-straight double-digit earnings beat in Q2 (Jul) and raising its FY23 guidance. As a further testament to the resiliency of the beauty industry, most of the ULTA's Q2 numbers glowed, helping propel shares toward YTD highs.
- Headline results shined, with adjusted EPS expanding by 25% yr/yr to $5.70 and revs jumping 16.8% to $2.3 bln. Meanwhile, same-store sales grew an exceptional +14.4% despite lapping a difficult comparison of +56.3%.
- As we saw from others in the beauty industry, including Sephora (LVMH), Estee Lauder (EL), and Coty (COTY), the categories that gave ULTA the most lift were fragrance and bath, skincare, haircare, and makeup. Each of these areas experienced double-digit comp growth.
- ULTA's primary product categories were bolstered by an ongoing return to in-person activities and travel. Considering comments from its peers, we are encouraged that these trends can continue.
- Department store Macy's (M) mentioned that occasion-based products were very healthy, evidenced by sales jumping 8% yr/yr in JulQ despite average unit retail (AUR) increasing about 13%. The company expects these trends to continue.
- Cosmetic manufacturer COTY continued to see a massive surge in worldwide travel, spurring its Retail Travel segment to double revs yr/yr in JulQ. The company noted that although sales are back to pre-pandemic levels, this is with 20-30% fewer passengers, building plenty of room for upside.
- Estee Lauder was confident that FY23 (Jan) would be monumental as an emergence of a "makeup renaissance," sparked by a re-opening of the economy in the Americas and EMEA, will fuel ongoing growth.
- We also like ULTA's partnership with Target (TGT). TGT noted that the high single-digit beauty product growth in JulQ stemmed mainly from its ULTA partnership. ULTA indicated that it is "really pleased" with its TGT partnership and is on track to open at least 250 stores with TGT this year.
- ULTA's raised FY23 guidance displayed confidence that current trends will last. The company expects EPS of $20.70-21.20, up from $19.20-20.10, revs of $9.65-9.75 bln, up from $9.35-9.55 bln, and comps of +9.5-10.5%, up strongly from +6.0-8.0%.
There are still risks to consider. Inflationary pressures are not subsiding meaningfully. ULTA estimates that about 3 pts of comp growth was due to price hikes alone in the quarter. Average units per transaction fell slightly yr/yr as well, a minor dip from flat growth in Q1 (Apr), highlighting the potential risks of continually hiking prices. ULTA expects to receive additional price increases from its brand partners throughout 2H23. In-person activities and traveling could also come under pressure if inflation does not ease, taking away a strong growth lever for ULTA.
Nonetheless, as ULTA and many of its peers have illustrated, demand for cosmetics has remained robust despite the current inflationary environment, which cannot be said for some other products in the retail market. Although inflationary concerns exist, ULTA's results over the past few quarters prove its durability, an encouraging sign going forward.
The Big Picture
Last Updated: 26-Aug-22 14:53 ET | Archive
Powell and the Fed mean business in restoring price stability
We liked the speech Fed Chair Powell delivered at the Jackson Hole Economic Symposium. It was, in his own words, "shorter," "narrower," and "more direct" than prior speeches given there. That did not make it any less impactful, however.
If anything, the brevity of his remarks, versus the gravity of the topic, suggested he and the Fed are now properly focused on the primary task at hand: bringing inflation back down to the Federal Open Market Committee's 2 percent goal.
That task, though, will have adverse consequences.
Pedal to the Metal
A major point of relief with the speech is that it is over. Talking heads must be walking around with a collective case of laryngitis, having talked ad nauseum leading up to the speech about what the Fed Chair might, or might not, say.
The takeaway is that he did not say anything truly surprising based on a battery of commentary heard from other Fed officials preceding his speech. What was surprising was the terse nature of his remarks.
From our vantage point, it sounded more credible this time that the Fed knows its job and that, even though it contributed to history repeating itself with inflation running amok, it is not going to let history repeat itself by cutting rates in a willy-nilly fashion because it happens to see a comforting inflation number here and there.
The Fed Chair spent a good portion of his brief speech talking about the experiences of the past, particularly the "high and volatile inflation of the 1970s and 1980s," and how the policy approaches then have helped inform the Committee's thinking on its policy approach today.
That is, it aims to avoid the misguided policy decisions that necessitated a lengthy period of very restrictive monetary policy under Paul Volcker to reduce inflation and to rein in inflation expectations.
This was not a speech that implied the Fed is going to be quick to take its policy foot off the gas pedal. The Fed knows it needs to keep driving beyond the neutral rate (longer run estimate of 2.5%) to a restrictive destination that is yet to be determined.
It is thought by some at the Fed that 3.75-4.00% could be the stopping point, but what the Fed Chair conceded in his Jackson Hole speech is that the Fed will keep driving until it is confident the job is done.
He also provided a reality check that there will not be a quick pivot to a rate-cut cycle, saying "Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy."
Showing Respect
The initial reaction in the capital markets to Mr. Powell's speech had a respectable level of appropriateness to it that was lacking when he spoke following the July 26-27 FOMC meeting. Stock prices trended lower, the dollar increased, and the 2-yr note yield fell in price, pushing its yield higher.
The respective moves connoted a sense of respect for the Fed Chair's message, which contained an acknowledgment that the effort to bring down inflation "will also bring some pain to households and businesses."
The debate topic for talking heads now is just how much pain there will be. That debate will revolve around expectations for a soft landing or a hard landing.
In either case, there is going to be a step down in economic activity because the stated aim of the Fed's monetary policy is to produce a moderation in demand so that it better aligns with supply. That will inevitably lead to job losses that will help tame wage-based inflation pressures.
Those pressures have not been tamed yet, and with an unemployment rate of 3.5% and roughly 1.9 job openings for every unemployed worker, Fed officials have an unenviable, but necessary, task on their plate.
This becomes a reality check for the stock market, too, because weakening demand will translate into weakening economic activity, which should then manifest itself in weakening earnings growth.
Accordingly, multiple expansion will be, and should be, harder to come by as interest rates rise and earnings growth slows or possibly contracts.
What It All Means
It can take a while sometimes to get a point across. The stock market hasn't necessarily been convinced that the Fed is going to be the policy disciplinarian it says it aims to be.
Fed Chair Powell, however, delivered a speech at Jackson Hole that put the market on notice that it means business in restoring price stability. We should all appreciate that.
At the same time, though, investors need to appreciate that there will be some earnings pain in that pursuit that translates into a more challenging stock market environment.
We might have seen peak inflation, but what Fed Chair Powell implied in his speech is that we are not at peak hawkishness. Moreover, when we get there, the Fed is not going to be quick to climb down until it knows the inflation ground below is stable again -- and that is still a long climb given where things stand now.
-- Patrick J. O'Hare, Briefing.com
(Editor's note: the next installment of The Big Picture will be published the week of September 5)
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