Without this Jackson Hole signal, stocks could slide 15% in the fall, says one strategist

Equities may drop like autumn leaves - david gannon/Agence France-Presse/Getty Images

Stocks start the week just shy of record highs, underpinned by a well-received corporate earnings season and hopes the Federal Reserve will soon start reducing official borrowing costs again.

Investors are therefore keen that Friday’s keynote address by Fed Chair Jerome Powell at the Jackson Hole symposium will be suitably dovish.

Most Read from MarketWatch

‘I can only rely on me’: How do I protect myself from my parents’ nursing-home bills? My aunt barely spends any money. Will we receive the contents of her safe-deposit box when she dies? My wife and I are in our 50s and have $11 million. We’re not leaving it to our kids. Is that wrong?

But there’s a danger it won’t be, says Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, and that may spell danger for stocks.

In a note published Sunday and shared with MarketWatch, he says that the stakes for Powell at Jackson Hole are high with both sides of the Fed’s dual mandate muddled.

Last week’s consumer and producer price data “revived [the] stickiness of inflation debate, he says. While jobless claims were subdued, a nonfarm payrolls report at the start of August showed the 3-month average at its weakest since 2010 when unemployment was 9%, he adds.

Awkward. And the problem is this backdrop is occurring while stocks have pushed ever higher, leaving the S&P 500’s SPX trailing earnings per share multiple at 25.5, Emanuel notes. That’s “among the highest since Y2K [the year 2000], and into challenging fall seasonality.”

Some market participants will have in their minds Powell’s Jackson Hole comments in 2022, when the Fed Chair delivered what Emanuel calls his stern inflation-is-job #1-and-we-are-just-going-to-keep-hiking speech. Stocks did not react well to that.-

This time, the market may be disappointed by Powell indirectly signaling a 25 basis-point rate cut on September 17, but stressing that 50 basis points is not an option and that any possible October or December cuts will remain data dependent, Emanuel reckons.

“For a market that was eager to embrace ‘50 in Sept’, a balanced view could catalyze a near term -7% to -15% pullback into October, within the context of the structural AI-driven bull market,” he says.

This fall fall, as Emanuel calls it, may track typically soft seasonal characteristics for equities.-

Plays to make under this scenario include buying October downside put options on the Invesco QQQ Trust Series I QQQ, which replicates the Nasdaq 100, says Emanuel. Puts give the buyer the right to sell an asset at a certain price by a certain date, and are usually made if the trader thinks the underlying asset will fall in price.

Story Continues

Also, buy attractive valuation sectors, such as healthcare, and help pay for that by selling high valuation stocks, such as Palantir PLTR, Cleveland-Cliffs CLF and Coinbase COIN.

Markets

U.S. stock-indices SPX DJIA COMP are mixed at the opening bell as benchmark Treasury yields BX:TMUBMUSD10Y fall. The dollar index DXY is higher, while oil prices CL.1 fall and gold futures GC00 are trading around $3,391 an ounce.

Key asset performance Last 5d 1m YTD 1y S&P 500 6449.8 0.94% 2.43% 9.66% 16.12% Nasdaq Composite 21,622.98 0.81% 3.48% 11.97% 22.64% 10-year Treasury 4.297 0.80 -8.70 -27.90 42.10 Gold 3394 0.01% -0.48% 28.59% 33.49% Oil 63.24 -1.19% -3.86% -12.01% -14.32% Data: MarketWatch. Treasury yields change expressed in basis points

Need to Know starts early and is updated until the opening bell, but to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

The buzz

U.S. economic data due on Monday include the home builder confidence index at 10:00 a.m. Eastern.

European leaders, including Ukraine’s Volodymyr Zelenskyy, will head to the White House on Monday to discuss Russia’s invasion of Ukraine.

Investors are looking to take members-club company Soho House SHCO private, according to the Wall Street Journal.

Novo Nordisk shares NVO are climbing after the Food and Drug Administration approved the popular weight-loss drug Wegovy to treat a form of liver disease.

Dayforce shares DAY are jumping after a report that the human resource software and services group could be a buyout target.

Palo Alto Networks PANW will release earnings after Monday’s closing bell.

Best of the web

The old software investing playbook is dead. Here’s where to put your money now.

Investors lose billions on U.S. penny stocks as ‘pump and dump’ scams multiply.

NYC offices are back. Nothing proves it more than JPMorgan’s $3 billion tower.

The chartSource: Jim Bianco on X. -

The Trump administration is agitating for the Federal Reserve to cut its fed funds rate significantly, mainly because of a desire for benchmark borrowing costs to fall. But as this chart from Jim Bianco of Bianco Research shows, if a country’s budget deficits are growing and inflation is a concern, then easier policy can cause higher long-term rates. “The last 125 basis points of rate cuts by the Bank of England have seen the 10-year Gilt rise 87bps,” says Bianco, who adds that “cutting rates is NOT lower long rates!”

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

Ticker Security name NVDA Nvidia TSLA Tesla UNH UnitedHealth PLTR Palantir Technologies NVO Novo Nordisk OPEN Opendoor Technologies GME GameStop AAPL Apple AMD Advanced Micro Devices TLRY Tilray Brands

Random reads

Californian rats going nuts.

Subway’s Russian franchise becomes Subjoy, opts not to go with Subboy.

‘Deceptively cute’ ancient whale with razor-sharp teeth and eyes the size of tennis balls discovered in Australia.

For more market updates plus actionable trade ideas for stocks, options and crypto, .

Most Read from MarketWatch

Nearly 50% of adults are now ordering kids’ meals. ‘It’s economical and it’s filling.’ I’m a senior who barely survives on $1,300 a month. No way could I live on $1,000. Gold has crushed stocks, bonds and even bitcoin in 2025. This banking giant just got more bullish.

View Comments