Here’s the takeaway from Jackson Hole for investors
This year’s edition of the Jackson Hole symposium has come to an end, and J.P. Morgan is out with a new note about what the outlook from Janet Yellen and her team mean for the market.
On Friday, comments from Yellen discussing the potential for future asset purchases were interpreted as very dovish by the market, sending the S&P 500 roaring higher. But then Stanley Fischer, vice-chairman of the U.S. Federal Reserve, suggested that a September rate hike could be in the bag and the rally promptly came to the end.
The market whipsaw suggests that investors are now pricing in the possibility that there could be multiple hikes by the end of the year. The timing, however, is up for debate.
J.P. Morgan has a few takeaways from the symposium amid the confusion.
First, a rate hike by year end is in the bag, “unless the economy underperforms expectations of around two per cent growth.”
Investors should also ignore the current dot plot from the Fed, which tracks rate hike projections from FOMC participants, because there is “so much uncertainty about what the right level for policy rates is over the next few years.”
J.P. Morgan also tells investors that the Fed will be prepared for further QE for a “long time” if necessary.
So how does all of this affect markets? J.P. Morgan concludes that the comments are “broadly medium-term bullish for financial assets, both safe and riskier ones, but bearish for the short end of safer assets.”
“It shows a Fed sufficiently bullish about the U.S. economy, and we think in this case realistically so, that it can take one more modest step towards rate normalization,” J.P. Morgan says.
To sum up: “Risk on” for stocks, at least in the medium term.