S&P 500: Jackson Hole
Market Outlook & Trade Idea Updates
Last week, Jerome Powell’s speech at Jackson Hole captured the attention of market participants.
The markets closed strong: the S&P 500 rose by 1.45%, and the Nasdaq increased by 1.09%. The risk-on segment of the market also saw significant gains, with the Russell 2000 up by 3.6% and the more modern risk on market barometer the ARKK ETF advancing by 4.9%.
In last week's letter, I outlined two scenarios I am considering for the foreseeable future: a bullish scenario where the market experiences a rapid advance— often referred to as a melt-up, and a bearish scenario where a rate cut might mark the peak for US equities. I plan to actively participate in both scenarios, and this weekly note will continue to share my interpretation of the current market environment and the corresponding trading strategy.
Rate cuts appear imminent (odds point to September)—Powell hinted at Jackson Hole, alongside his confidence that inflation is moving back towards the Fed's 2% target, balanced with employment concerns. Economists now face the question: are these rate cuts meant to stimulate economic growth, or are they a response to underlying economic troubles? Historically, equity markets have often peaked around such fiscal adjustments.
I have long shared that I find the economic side of the market interesting, but only maintain awareness leaving my portfolio management heavily weighted towards a moderately paced form of technical analysis. With that— this weeks note will provide a summary of the risk-off criteria, and provide updates to the three category trade ideas: US Small Caps (3), Outside US Equities (3), and The Gold Trade (1).
Risk Off Criteria - 0/3
For me, three key criteria define the environment in which the market is operating in— either a risk on or risk off environment. The chart summarizes the three analysis components across three chart panels, summarized as “on” or “off” on the right side of the chart.