U.S. Stocks Edge Higher as Investors Eye Fed's Jackson Hole Signals

On Monday afternoon, U.S. stocks showed slight gains with the Dow Jones Industrial Average rising by over 100 points. Despite a decline in July's Leading Economic Indicators (LEI), signals of an impending recession were absent. The key focus this week is on the Federal Reserve's meeting minutes and Chair Jerome Powell's speech at the Jackson Hole symposium on Friday.
The Dow Jones increased by 146.00 points or 0.36%, reaching 40,805.76. The Nasdaq gained 45.34 points or 0.26%, at 17,677.06, and the S&P 500 rose by 18.66 points or 0.34%, to 5,572.91.
All three major U.S. stock indices recorded gains last week. Specifically, the S&P 500 Index saw a weekly increase of 3.9%, marking its most significant weekly rise since the beginning of 2023. The Nasdaq and the Dow Jones rose by 5.2% and 2.9%, respectively.
Earlier this August, the S&P 500 experienced its worst single-day performance since 2022 on the 5th, driven by disappointing economic data that fueled fears of a recession and suggestions that the Federal Reserve might be lagging behind in cutting interest rates.
However, last week's favorable economic data helped alleviate market anxieties and renewed hopes of a soft landing for the U.S. economy. Robust retail sales and initial jobless claims, coupled with strong earnings from Walmart, reassured investors.
In light of the August 5th downturn, some buyers returned to support U.S. stocks, helping recoup over half of the summer's losses.
Federated Hermes's portfolio manager Louise Dudley noted, "The market has warmed up and feels more stable now. We expect some volatility in the mid-term and will seek to capitalize on price fluctuations. Several large-cap stocks still offer top-tier growth opportunities."
The July Consumer Price Index (CPI) indicated that the annual inflation rate had slowed to 2.9%, its lowest in over three years.
UBS's Greg Marcus commented, "Earlier this month, the market was overly concerned about a recession. Although nearly fully recovered, we still anticipate considerable volatility in U.S. stocks for the remainder of the year."
JPMorgan analysts warned that the recent sell-off, which caused the biggest drop in stocks in two years, might foreshadow future trends. Their sentiment improved following a series of positive economic data, which led some Wall Street professionals to believe the early-August drop was an overreaction to short-term data fluctuations.
The market this week is eagerly anticipating Powell's address in Jackson Hole for clearer insights on the Fed’s interest rate outlook, while traders will also scrutinize the Fed’s latest meeting minutes set to be released on Wednesday.
UBS’s Marcus highlighted, "Though we remain generally bullish, the market won't climb in a straight line. With economic deceleration and mixed economic data points, the debate over a potential U.S. recession will continue."
Bentley Reid's CIO Paul O'Neill added, "All eyes are on Friday. We'll closely watch for any rate cut signals and their potential scale."
The futures market has fully priced in a 25 basis point rate cut and indicates a 25% chance for a 50 basis point cut, largely contingent on the upcoming August non-farm payrolls report.