Stocks pop as Fed Chair Jay Powell signals shifting risks may warrant rate cut

Friday was a romp for stocks after Fed Chair Jay Powell’s speech at the Jackson Hole Economic Symposium, which signaled he’s considering “adjusting policy.”

Putting it all together: the Fed is saying for one half of its mandate (inflation), the problem looks to be short-term in nature, while the job market is in a more precarious position. This scenario has taken shape at a time when the Fed chief judges the policy rate to be modestly restrictive — that is, putting downward pressure on economic and job growth as well as inflation, which offers some scope to reduce rates.

That kicked off a bonanza:

Stocks that cater to people spending disposable income popped immediately. Shares of US airlines took off Friday morning, with American, Delta, and United all up 6% or more. Cruise stocks and travel-booking sites rose on the speech as well.

Crypto got in on the action, too, led by ethereum, which was up by double digits following the comments. All major cryptos were in the green on the news.

Meme stocks also took off. A basket of meme stocks compiled by UBS was on fire on Friday, led by Opendoor Technologies, which finished the day up 39%. Head of EMJ Capital Eric Jackson, who’s been spearheading retail enthusiasm for the stock, told us that the outlook for rate cuts would be “nice to have in the back pocket with the other constellation of pluses in favor of Opendoor.”

Anyway, the market was certainly digging what Powell was dropping in Jackson Hole.

The Takeaway

The implied odds of an interest rate reduction at the central bank’s September meeting surged to 90% from 72% heading into the speech. More than 50 basis points of easing are now priced in through year-end.