Stocks mostly rose in August, buoyed by a strong end to the month. Positive inflation data and economic reports lifted stocks, with investors encouraged by Federal Reserve Chair Jerome Powell’s comments suggesting it might soon be time to lower interest rates. Inflation reported on August 14th, 2024, showed continued stabilization, with the 12-month Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) price index at 2.9%, nearing the Fed’s 2% target. Job growth slowed further in July and August, falling short of expectations, with downward revisions to previous months highlighting a weakening labor market.
With inflation stabilizing and job growth cooling, the Fed and markets shifted focus from inflation control to the Fed’s other mandate: full employment. At the August Jackson Hole Symposium, Powell expressed increased confidence in controlling inflation, stating, “My confidence has grown that inflation is on a sustainable path back to 2%.” He also addressed the labor market, noting, “It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon. We do not seek or welcome further cooling in labor market conditions.” This was interpreted as a signal that rate cuts are forthcoming, though some analysts question whether the Fed has delayed action too long, pointing to signs of economic weakness and potential disappointments in corporate earnings.
Concerns about the Fed’s timing, typical market seasonality, and uncertainties surrounding the upcoming election cycle suggest potential near-term market volatility. Powell emphasized that the timing and scale of rate cuts will depend on upcoming economic data, particularly labor market indicators.
The upcoming FOMC meeting on September 17-18, 2024, is expected to result in a 25 or 50 basis point rate cut, signaling the Fed’s intent to support the economy and avoid recession. Markets are already pricing in significant rate cuts by year-end. Typically, rate cuts lower borrowing costs, boosting corporate profits and investment, which can spur stock market gains, especially in rate-sensitive sectors. However, the economic downturn could deepen if cuts are insufficient or too slow.
Economic commentators Barry Knapp and Jeremy Siegel have weighed in on the Fed’s approach. Knapp is pessimistic about the near-term economic outlook, expressing concerns over the labor market and suggesting that recession risks are high as Election Day approaches. Given how close inflation is to its target, Siegel argues that the Fed should cut rates more aggressively, cautioning that slow cuts could unnecessarily risk economic stability.
Watch Powell’s Jackson Hole remarks, Knapp’s CNBC appearance, and Siegel’s interview for more insights into their perspectives and to form your own opinions.
We understand that market ups and downs can be unsettling, especially with all the headlines and uncertainties in today’s world. It’s easy to feel overwhelmed, but this is when it’s most important to keep our long-term perspective. While the future is always uncertain, and markets can be unpredictable in the short run, trying to react to every twist and turn often does more harm than good. The reality is that short-term volatility is part of the journey—and it’s the price we pay for the long-term growth that stocks have delivered over time.
As the Federal Reserve navigates its path—whether a smooth or bumpy landing ahead—we must remind ourselves that periods like this are normal, especially in late summer and early fall, which can be even more unpredictable in a presidential election year. No matter the headlines or the noise, our commitment to you remains the same: staying focused on the bigger picture and what we can control.
We’re here to guide you with a long-term strategy that aligns with your goals, time horizon, and comfort level. Our approach focuses on building diversified, cost-conscious, and tax-aware portfolios designed to support your long-term financial goals through all market conditions.
Your August portfolio reports are now available in your eMoney vault, and we’ll contact you soon to schedule an end-of-year review. But don’t hesitate to reach out if you’d like to talk or set up a review sooner.
Thank you for allowing us to be part of your journey and for placing your trust in us. We look forward to connecting with you soon!
This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward-looking and should not be viewed as an indication of future results.
