Market Call: Bungee Jump

Last week's economic data confirmed that consumers are still consuming, the labor market is fine, small business owners are more optimistic, and inflation is still moderating. On Friday, at Jackson Hole, Wyoming, Fed Chair Jerome Powell is likely to reiterate that the economy is performing well and that inflation is getting closer to the Fed's 2.0% target. He is likely to support market expectations that the Fed will cut the federal funds rate by 25bps in September. But he is also likely to push back on expectations of cuts in November and December. He will repeat that the Fed's decisions are data dependent.

The stock market rebounded sharply last week from the prior week's drop, after July's soft employment report (released on August 2) heightened recession fears, which abated especially after July's strong retail sales report (released on August 15). The stock market's drop at the start of August was exacerbated by the unwinding of carry-trades. But that bearish development also dissipated quickly.