NEWS
“The Time Has Come” - Jerome Powell

Jerome Powell, the destroyer of puts, delivered dovish remarks at Jackson Hole today, sending pretty much every asset except the U.S. Dollar higher. Small-caps led the way as firms like regional banks benefit significantly from a lower-rate environment. Let’s see what you missed. 👀

Today's issue covers the market’s reaction to Powell’s speech, broadening stock market participation, and why cyber stocks are in focus going into next week. 📰

Here’s the S&P 500 heatmap. 11 of 11 sectors closed green, with consumer discretionary (+1.93%) leading and utilities (+0.28%) lagging.

And here are the closing prices: 

Most bullish/bearish symbols on Stocktwits at the close: 📈 $SSYS, $MNTS, $BKKT, $SQNS, $WDAY 📉 $GEV, $UI, $IESC, $UWMC, $CLEU*

*If you’re a business and want to access this data via our API, email us.

ECONOMY
Small-Caps Roar After Powell’s Push 📈

After setting the table for a September cut at the July meeting, Fed Chairman Jerome Powell confirmed, in no uncertain terms, that the pivot is complete.

In the early part of his speech, he said, “The time has come for policy to adjust. The direction of travel is clear and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Some other noteworthy phrases include:

• “The cooling in labor market conditions is unmistakable.”

• “It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon.”

• “We do not seek or welcome further cooling in labor market conditions.”

• “We will do everything we can to support a strong labor market as we make further progress toward price stability.”

The paragraph below sums up his view on current conditions and how the Fed looks to navigate them going forward. 👇

The question now is not whether the Fed will cut but how quickly it will need to cut based on the economy’s trajectory. Currently, the market is pricing in 125 bps in cuts before the end of the year, which is significantly more aggressive than the Fed’s June projections. 🔮

What they agree on, however, is that the long-term ‘neutral rate’ is likely in the mid-3% range. However, the market’s expected path to get there is likely to thrash around with the economic data as it comes in, while the Fed takes a more measured approach to its communication and policy moves.

Market participants expect rate cuts to benefit stocks across the board, but the lower rate environment continues to drive strength in small-cap stocks, which are more leveraged to the level and path of interest rates.

Bullish analysts expect the gap between large-cap and small-cap performance to continue closing, which it did today, as the Russell 2000 rose over 3%. And the Stocktwits community seems to agree, as sentiment pushed into ‘extremely bullish’ territory during today’s move. 🐂