“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses…these are the unfortunate costs of reducing inflation.”
~ Federal Reserve Chairman Jerome Powell during his 8/26/22 morning speech at the Jackson Hole Symposium ~ (emphasis is ours)
Fed Chair Jerome Powell said “pain” twice in his eight-and-a-half-minute speech Friday morning and markets did not care for his choice in words as the S&P 500 registered its worst market session since mid-June. Clearly Powell’s prepared speech was more hawkish than many market participants expected, but it is important to note that the S&P 500 had just rebounded over 15% and likely emboldened the Fed to push back more forcefully against growing hopes of a more accommodative Federal Reserve. Mr. Powell did acknowledge improving inflation data but emphasized that “a single month’s improvement falls far short of what the Committee will need to see” while he also highlighted how the labor market remains strong. Ultimately, Friday’s speech was mostly as we expected, the Fed pushed back against a market that was probably a bit ahead of itself while preparing investors for more restrictive monetary policy and reiterating the importance of data dependence. However, it is noteworthy that the Fed has been able to raise rates into a labor market adding on average a healthy 470K nonfarm payrolls each month in 2022. Next Friday, we get the jobs report for August and a figure below consensus expectations of 290K jobs (per FactSet) might actually be preferred by markets if it shortens the runway for future Fed interest rate hikes.
Down Goes Cable
Netflix might be the worst performing stock in the S&P 500 year-to-date but per new data from Nielsen, streaming more broadly is doing quite well and in July officially eclipsed cable as the most popular method for Americans to watch TV (see chart below). In July audiences watched an average of 190.9 billion minutes of streaming content per week with Netflix and YouTube leading in market share. Cable had been the king for decades and it will be interesting to see if a new technology ever emerges and eventually unseats streaming.
Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder
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