What To Do After Dow Jumped By Over 800 Points
The Jackson Hole Symposium is a bullish turning point for stock markets. On August 22, the Dow gained over 800 points to close at a record high. Fed Chair Jerome Powell suggested a greater chance of the central bank starting its monetary easing policy.
The rate cuts are not without risk. Excessive cuts would accelerate inflation, which is already around 100 bps above the Fed’s target rate. Tariffs hurt demand. As a result, the risk of stagflation is higher than markets believe.
Investors should continue to hold bank stocks. JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), and Bank of America (BAC) have a good chance of trending higher. A hot, inflation-fueled economy would increase business deals. Higher transaction volumes would raise bank profits.
Continue to hold technology stocks. The premium price-to-earnings valuations in shares of Nvidia (NVDA), Meta Platforms (META), Amazon (AMZN), and Tesla (TSLA) are justifiable in a rate-cutting environment.
Powell said in his speech that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” This points toward a 25 bps cut in the next meeting. Investors will need to wait for the FOMC statement in September to set the odds of another 25-bps cut.
Powell mentioned “sweeping changes” in immigration, tax, and trade. Those factors have an impact on consumer demand and employment levels. He likely has growing concerns that weaker job markets will require an easing of monetary policy.
