Two the Point — Gearing Up for Jackson Hole

This week’s market update highlights encouraging signs from recent data, the implications for Federal Reserve policy, and expected volatility as we approach the Fed’s annual Jackson Hole meeting and election season.

Key Insights:

• Inflation Update: The U.S. Producer Price Index (PPI) was softer than expected, with headline inflation at 2.2% and core inflation at 2.4%.
• Federal Policy Outlook: The market is pricing in about 100 basis points of rate cuts by year-end, likely as a mid-cycle adjustment rather than a recession-driven panic.
• Consumer Expectations: The New York Fed’s Survey shows a sharp drop in median three-year-ahead inflation expectations to 2.3%, a series low.
• GDP Growth: Real-time GDP estimates are solid, with the Atlanta Fed at 2.9% for Q3 and the Dallas Fed at 2.2%, indicating economic resilience.
• Labor Market: Initial jobless claims improved to 233,000 for the week ending August 3rd, down from 250,000 the prior week.
• Market Volatility: Historical VIX trends suggest heightened market volatility from September to November during election years, with potential normalization post-Election Day.
• Investment Strategy: Diversification, particularly with high-quality bonds, remains crucial for protecting portfolios during periods of uncertainty.