How Jackson Hole Could Revive the Stock Market Rally

The market will be listening carefully to Fed Chairman Jerome Powell’s speech in Jackson Hole, Wy.


Graeme Jennings-Pool/Getty Images

The stock market has gotten itself into a better place in the past few months. The Federal Reserve’s Jackson Hole meeting could keep the good times rolling. 

The



S&P 500

has gained 13% since its lowest close of the year in mid-June. That’s included a speed bump in the past few trading days, with the three major indexes now trading below their multi-month highs.

The current concern is that the rate of inflation may remain high enough that the Federal Reserve will need to remain “hawkish,” maintaining its recent pace of interest rate hikes, not slow it down. The Fed meets at its annual Jackson Hole Symposium Friday, and the market will be looking for cues about the pace of rate hikes, which are meant to curb inflation by reducing economic demand. 

“Investors are discounting what is broadly expected to be a hawkish speech by Fed Chair Powell,” writes Dennis DeBusschere, founder of 22V Research. 

Taking a step back, though, the larger summer rally has contained some encouraging technical signals for the market. The rally has lifted the S&P 500 above several key technical levels, sending it closer to its 200-day moving average. That’s a key level that encapsulates stock prices at higher levels from months ago, so if stocks trade at those levels again, it signifies higher investor confidence. The index hit a level close to that average a few days ago before backing down. The good news: It often takes a few tries for the index to surpass the 200-day moving average after falling below, historically speaking, writes Craig Johnson, chief market technician at



Piper Sandler
.

 

And it hasn’t been just a few stocks lifting the market to these levels, rather the majority of stocks. Many stocks participating in a rally means the indexes aren’t reliant on a small basket of names to keep them moving higher. The


Invesco S&P 500 Equal Weight exchange-traded fund

(RSP), which weights each stock in the index equally and therefore shows the movement of the average stock, has gained about 12% since its mid-June low. 

That is yet another sign that the rally may continue. “The bottom in market breadth and subsequent recovery implies this is not a bear market rally,” writes Johnson. 

This is all “technical analysis,” but it suggests that all the stock market needs to resume rising is a status quo message from the Fed. The summer rally has been built on the idea that the Fed will slow down the pace of rate hikes, so if the Fed sticks to that message, stocks can climb higher. 

The Jackson Hole meeting usually spurs market gains. The average one-month move in the S&P 500 after the first day of the meeting is a 0.5% gain. To be sure, the month of September alone usually spells a small decline, but this data might suggest that the market could get a short jolt from the meeting and then cool off at some point in September. 

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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