Stocks Can Rally Out of Jackson Hole, Strategists Say

(Bloomberg) — Stocks and other risk assets have a chance to rally if Jerome Powell delivers a nuanced message at the Jackson Hole symposium, strategists say.

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Hawkish recent comments from Federal Reserve officials appear to have convinced market participants to get out of the way as the central bank raises interest rates, leading to a consensus that Chair Powell will deliver a hawkish message on Friday, according to Standard Chartered Plc.

“We see risk that the market prices more hawkishness than he delivers,” Steve Englander, New York-based strategist at the bank wrote in a research note. “With positioning skewed in a bearish direction, we could see a relief rally even on a moderately hawkish stance, recognizing that data on activity and inflation are the ultimate USD drivers.”

Sentiment toward both stocks and bonds has turned bearish in recent days as traders brace for a potentially hawkish pivot from Powell at the Kansas Fed’s annual retreat. A US stock slide extended into Asia Tuesday and benchmark US 10-year yields held above 3% amid the prospect of further Fed policy tightening.

‘Dovish Surprise’

Still, the room for a hawkish surprise at Jackson Hole is now rather limited, said Alvin T. Tan, head of Asia foreign-exchange strategy at RBC Capital Markets in Singapore.

“I doubt that Powell will pre-commit to any hike quantum in the September Federal Open Market Committee meeting, certainly not 75 basis points,” he said.

There’s a possibility Powell may reiterate his message from July’s Fed gathering, where he said the central bank would be more data-dependent going forward, which would be a “dovish surprise,” and spur a resumption in the equity market rally, Tan said.

JPMorgan Chase & Co.’s clients are also far from convinced a hawkish shift is likely. Fifty percent of them say the Fed is unlikely to deliver any surprise at the symposium, while just 43% said they anticipated hawkishness and 7% expect dovishness, according to a report.

The Fed is likely to remain hawkish, but risk assets may rally if Powell leaves guidance ambiguous again, said Charu Chanana, a senior strategist at Saxo Capital Markets in Singapore. He may for instance say the central bank remains data dependent or signal concern over a possible economic slowdown, she said.

(Updates to add strategist comment in ninth paragraph)