Trading Day: AI Fatigue and Policy Intrigue
Wall Street slipped into the red again on Wednesday, weighed down by growing skepticism about the hype surrounding artificial intelligence. Tech shares, which have led gains earlier this year, are now facing selling pressure as investors turn cautious ahead of a key speech from Federal Reserve Chair Jerome Powell set for Friday.
Powell’s upcoming address at Jackson Hole is his eighth and final as Fed chair. Historically, his speeches at this event have triggered notable market volatility, so investors should prepare for potential swings this time around as well.
Market Highlights Today
- Stocks: Tech selloff dragged Wall Street lower with the Nasdaq down 0.7%. China’s market closed at a decade high, Europe saw modest gains, but emerging markets slipped.
- Shares & Sectors: Target shares dropped 6% following the appointment of insider Michael Fiddelke as CEO. Intel fell 7% amid reports the government is considering taking stakes in chipmakers.
- Forex: The New Zealand dollar declined 1% after the Reserve Bank of New Zealand delivered a dovish rate cut, bucking a broader trend of U.S. dollar weakness.
- Bonds: U.S. Treasury yields edged slightly lower, recovering from earlier losses after the release of Fed meeting minutes. The 20-year bond auction results were mixed.
- Commodities: Gold gained 1% on safe-haven demand, and oil rebounded about 1.5% due to a drawdown in U.S. inventories.
Key Themes Driving the Market
Political Influence on Policy: Concerns are mounting about political interference in economic and policy decisions. President Donald Trump called for Fed Governor Lisa Cook to resign over mortgage allegations, potentially clearing the path for another Trump appointee favoring lower rates. Meanwhile, Commerce Secretary Howard Lutnick is reportedly exploring government equity stakes in chipmakers like Intel as part of the CHIPS Act.
Tech Sector Fatigue: After a strong rally earlier this year, tech stocks are losing momentum, pulling broader indexes down. The S&P 500 tech sector has dropped nearly 5% over the past five trading sessions. However, this follows a significant 60% surge between early April and mid-August, suggesting some profit-taking and rotation might be at play.
Fed Meeting Minutes: The minutes from the July 29-30 Federal Reserve meeting showed most policymakers agreed to keep rates steady at 4.25%-4.50%. Only two dissented, and none pushed for immediate cuts. This suggests the threshold for lowering rates may be higher than some anticipate.
What to Expect From the Jackson Hole Speech
Markets are bracing for Powell’s final Jackson Hole keynote, with particular focus on whether he will hint at a rate cut in the September 16-17 Fed meeting. Futures markets currently price in an 85% chance of a 25-basis-point cut next month, and some expect additional easing by year-end.
Powell’s remarks could either confirm these expectations or challenge them, potentially causing significant market moves. Historically, his Jackson Hole speeches tend to move bond yields higher, even though he is often viewed as somewhat dovish. Traders should be ready for volatility.
Context and Considerations
Inflation remains about 1 percentage point above the Fed’s 2% target, while unemployment is near a historic low at 4.2%. The theme this year at Jackson Hole is “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy.” Powell has emphasized the unemployment rate as the best labor market indicator, but rapid changes in employment could quickly shift the Fed’s stance.
Markets should expect significant price swings regardless of whether Powell signals a move toward easing or maintains a cautious tone.
Looking Back and Forward
Powell is likely to use this platform to frame his legacy, a tradition followed by previous Federal Reserve chairs like Greenspan, Bernanke, and Yellen. Given intense political pressure to cut rates this year, this speech may be Powell’s last major chance to influence public perception and policy expectations.
Events to Watch Tomorrow
- Australia, Japan, India flash PMIs for August
- South Korea producer inflation (July)
- UK public finances (July)
- UK and Eurozone flash PMIs for August
- Canada producer inflation (July)
- U.S. weekly jobless claims
- U.S. Philly Fed business index (August)
- U.S. PMI (August)
- U.S. $8 billion auction of 30-year TIPS
- U.S. earnings report from Walmart
- Remarks by Atlanta Fed President Raphael Bostic
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