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Wednesday, August 21, 2024

Jackson Hole Symposium

By Century Financial in 'Investment Insights'

Jackson Hole Symposium
Shariah-Compliant Stock

The annual Kansas City Fed’s Jackson Hole Symposium is scheduled to take place between 22nd August and 24th August 2024. Fed Chairman, Jerome Powell, is slated to deliver a keynote address on Friday, 23rd August 2024. This annual gathering of policymakers, economists, and financial experts has always garnered substantial investor interest as it offers valuable insight into future monetary policy direction and global economic trends.

This year will bring heightened scrutiny to the event considering the Fed is on the verge of an imminent pivot to rate cuts in September 2024. Recent economic data has also complicated the outlook, with NFP and CPI data showcasing a trend of disinflation while retail sales suggest resilience in consumer spending. Adding to these complexities is growing chatter about a potential recession in the U.S. – although concerns about the same have abated quite a lot recently. By virtue of these factors, there is some uncertainty about the magnitude of interest rate cuts. The latest CME futures imply a 32% probability of a jumbo 50-bps rate cut in September versus a much higher 68% probability that rates will be lowered by a quarter-point.

During his keynote address, Powell might adopt a non-committal approach by remaining tight-lipped about the timing and extent of rate cuts. This is because the Fed’s data-dependent approach might compel Powell to await key economic reports preceding the September FOMC meeting, such as the NFP report on September 6, before deciding to pivot. Nonetheless, market participants are confident that interest rates will be lowered by at least a quarter of a percentage point. This is because consumer prices eased for four consecutive months, falling below 3% in July 2024 for the first time since early 2021. With three rate-setting meetings left in 2024, recent data points have reinforced confidence that the Fed will loosen its hold on monetary policy. Even so, market participants remain cautious and seek concrete evidence to alleviate uncertainty. This need for clarity has intensified in the wake of recent wild swings in the markets. The S&P 500 has seen a substantial rebound, adding $3.3 trillion in value over a few weeks, after a significant drop from its July 16 peak to its August 5 low, which nearly led to a market correction.

Echoes of Jackson Hole:
Analysing S&P 500 Reactions to Powell's Past Speeches

A Fed chair's speech at Jackson Hole usually doesn't have a major impact on the stock market unless it precedes a significant change in monetary policy — as is the case this time. According to Bloomberg Intelligence data, since 2000, the S&P 500 has averaged a 0.4% gain in the week following the event.

The table below illustrates the historical performance of the S&P 500 during previous speeches made by Powell at the Jackson Hole convention between 2019 to 2023.
Year Date Fed' stance S&P 500 Index Nasdaq 100 Index
On the day On the day
2024 23-Aug-2024 Could potentially signal a rate cut at the September FOMC ? ?
2023 25-Aug-2023 Powell acknowledged the progress in bringing inflation down while stating that it still remained too high above the target. Fed maintained rates between 5.25% to 5.50% since July 2023, reiterating the higher-for-longer narrative. 0.67% 0.85%
2022 26-Aug-2022 Inflation had risen to a 40-year high and was running at its fastest pace since the early 1980s. Unemployment had fallen to the lowest levels since the 1960s. The Fed had embarked on an aggressive tightening spree and signaled more rate hikes even at the cost of weakening the labor market. -3.37% -4.10%
2021 27-Aug-2021 Inflation had risen to more than double the Fed’s 2% target. Powell was in no hurry to raise interest rates as the central bank believed inflation was transitory and would resolve on its own. The Fed also did not see any need to taper its bond-buying program. 0.88% 1.01%
2020 27-Aug-2020 The sudden and severe economic downturn caused by the COVID-19 pandemic in early 2020 resulted in record-breaking job loss within just two months. The Fed bought trillions of dollars of bonds and pinned rates to zero to stimulate the economy. Powell stated the Fed wouldn’t raise rates unless there was a considerable spike in inflation. Critics contend that this policy change contributed to the Fed’s delayed response to the inflation surge that began in 2021. 0.17% -0.38%
2019 23-Aug-2019 In 2018, the Federal Reserve increased interest rates to combat rising inflation triggered by US-China trade wars. Subsequently, in 2019, Federal Reserve Chair Jerome Powell initiated interest rate cuts and signaled further reductions. However, President Trump criticized Powell for the perceived slow pace of these cuts. -2.59% -3.15%
Average -0.85% -1.15%
 
Cross-Asset Reactions to Powell's Jackson Hole Addresses
Year Date U.S Dollar Index Gold U.S. Treasury Bond Ultra Euro Buxl
On the day On the day On the day On the day
2024 23-Aug-2024 ? ? ? ?
2023 25-Aug-2023 0.09% -0.10% 0.00% -0.56%
2022 26-Aug-2022 0.31% -1.17% 0.46% -0.62%
2021 27-Aug-2021 -0.40% 1.40% 0.50% -0.19%
2020 27-Aug-2020 -0.01% -1.28% -1.68% -0.69%
2019 23-Aug-2019 -0.54% 1.93% 1.48% 0.47%
Average -0.11% 0.16% 0.15% -0.32%

Data as of 19th August 2024
Source: Bloomberg

Risks and Assumptions related to Back-tested trading strategies
The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved.
The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.
Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance.
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Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage.
Unforeseen events can lead to variation in performance from the tested trading strategy.
The tested result has been computed with price feeds available from Bloomberg.
The testing environment has not considered transaction or any other costs.
Trading indicators used for the purpose of testing has been provided by Bloomberg.
The strategy might suffer from data mining fallacy, selection bias and backfill bias.
A trading strategy that performs well on multiple datasets from one market (e.g., forex) might not perform as well in another market (e.g., stocks).
The strategy may not depict accuracy in terms of spread changes due to the spread-widening events.

Disclaimer: Century Financial Consultancy LLC (CFC) is duly licensed and regulated by the Securities and Commodities Authority of UAE (SCA) under license numbers 20200000028 and 20200000081 to practice the activities of Trading broker in the international markets, Trading broker of the OTC derivatives and currencies in the spot market, Introduction, Financial Consultations, and Promotion. CFC is a Limited Liability Company incorporated under the laws of the UAE and registered with the Department of Economic Development of Dubai (registration number 768189). CFC has its registered office at 601, Level 6, Building no. 4, Emaar Square, Downtown, Dubai, UAE, PO Box 65777.

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