Stocks often rise the week of the Fed’s big Jackson Hole gathering. Don’t count on it this year.

Fed Chair Jerome Powell speaks Friday. - Saul Loeb/Agence France-Presse/Getty Images

Later this week, economists, central bankers and members of the business press will gather in Jackson Hole, Wyo. for the Kansas City Federal Reserve Bank’s annual Jackson Hole Economic Policy Symposium.

The gathering has become a highlight of the summer calendar for Fed watchers, and a perennial destination for luminaries of the economics profession. For investors, the main event usually takes place on Friday, when the chair of the Federal Reserve delivers an address that is broadcast live to participants in financial markets.

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Powell is due to speak Friday at 10 a.m. ET. For some, Powell stepping up to the microphone in Jackson Hole might stir unpleasant memories. Back in 2022, he stopped a torrid bear-market rally in its tracks when he insisted that the central bank remained committed to crushing inflation by keeping interest rates high, even if this approach resulted in some pain for American consumers and businesses.

See:Will Powell use Jackson Hole speech to push back on hopes for September rate cut?

But according to a team of strategists at Bespoke Investment Group, the S&P 500’s 4% drop that week hardly typifies how markets have historically reacted during the week of Jackson Hole.

Going back to 2009, the week has generally seen positive returns for equity investors, with a median gain of 0.8% for the S&P 500, Bespoke found. Stocks have only finished the week lower five times since then, out of 16 total examples. Only twice has the selloff been greater than 1%: In 2019, and 2022.- BESPOKE

Treasurys have generally trended higher, too, although their returns haven’t been quite as robust as what equity investors have experienced. The Bespoke team found that the iShares 20+ Year Treasury ETF TLT has seen a median return of +0.2% during the week of Jackson Hole. Treasury yields fall as prices rise.

Setting aside historical performance figures, investors appear to be bracing for potential volatility this time around, the Bespoke team said. And with good reason. Powell is facing tremendous pressure from the White House to deliver a rate cut at the Fed’s next meeting in September.

So far, Fed policymakers have appeared increasingly divided on whether starting to cut interest rates again here would be the right approach. Back in July, two members of the Fed’s board of governors broke with their peers to vote in favor of a 25 basis point cut to the Fed’s policy rate target, the most dissents by members of the board of governors since 1993. A rotating group of regional Federal Reserve branch presidents also gets to vote on rate policy, alongside members of the Fed’s Washington-based governors.

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Fed funds futures traders are pricing in a strong chance of a rate cut in September. The market-based probability put chances of a hike at more than 80% as of Monday, according to data from CME Group. Some have wondered whether Powell might push back on these expectations come Friday. But even if Powell hints that the central bank could move ahead with more rate cuts, the result on Friday might be a Catch-22 for investors.

Neil Dutta, head of economic research at Renaissance Macro, said his macroeconomic models make a strong case that the Fed’s policy rate should be lower. But by suggesting that rates should come down, Powell would likely need to acknowledge that the labor market is, in fact, weakening. Investors have already received plenty of disappointing data on that front — the July jobs report was dismal enough that President Trump even fired the head of the Bureau of Labor Statistics, alleging without evidence that the numbers had been rigged.

But something about hearing concerns about the labor market straight from Powell himself could help drive the point home to financial market participants.

“For equity investors, it might be wise to take some chips off the table heading into Jackson Hole,” Dutta said in commentary shared with MarketWatch. The fact that equity valuations have soared into historically high territory could leave stocks vulnerable to any perceived disappointment.

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

To be sure, Jackson Hole isn’t the only potentially market-moving event this week. Investors will hear from a number of senior Fed officials, received the minutes from the Fed’s latest policy meeting, and digest a handful of corporate earnings reports from major American retailers.

Major indexes were kicking off the week on a soft note, with the S&P 500 SPX and Nasdaq Composite COMP marginally lower, while the Dow Jones Industrial Average DJIA was little changed in recent trade.

Don’t miss:Investors are plowing into homebuilder stocks. Will Jackson Hole prove them wrong?

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