Market Call: Did Powell Just Pour Gasoline On Stock Market's Fire?

Fed Chair Jerome Powell's speech at Jackson Hole on Friday was unambiguously dovish, as we observed in that day's QT. It was also unambiguously bullish for the stock market because it confirmed widespread expectations that September's cut in the federal funds rate is in the bag and will be followed by several more cuts. However, the stock market may have discounted most of these expectations. Furthermore, stronger-than-expected economic news is likely in coming weeks, in our opinion. If so, that might dampen rate-cut expectations.

For now, we are sticking with our Roaring 2020s base-case scenario (with a 60% subjective probability) targeting the S&P 500 at 5800 by the end of the year , 6300 next year, and 6825 in 2026 (chart). Those are the top ends of our forecasting ranges based on our optimistic outlook for earnings and a 21 forward P/E. (See YRI Earnings Outlook.)