Is the Fed Listening? Powell’s Dovish Shift Says “Yes!”
The markets are in a solid uptrend, and pullbacks should be considered buyable. Some of the skittishness we saw in markets last week could arguably be attributed to anticipation of Powell’s remarks at the end of the week. But, after a few days of mostly selling, Fed Chair Powell came out a little dovish.
Powell said shifting risks may warrant adjusting the Central Bank’s policy stance. Many investors liked that the Chair is paying greater attention to the labor market, which is much needed because of the recent downward revisions to the jobs report.
“Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both supply of and demand for workers,” he said. “This unusual situation suggests that downside risks to employment are rising. If those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”
New home sales dipped 0.6% in July to a better-than-expected 652,000 unit annual rate, as the prior month was revised up. Even so, new home sales have remained stuck in a range since mid-2022, as high mortgage rates and affordability constraints continue to weigh on demand. A potential Fed rate cut in September could be a catalyst for home sales growth, if indeed it leads to lower bond yields and mortgage rates.
The S&P Global flash U.S. composite PMI unexpectedly increased (from an already-high reading) in August to 55.4, its best level this year.
The upside surprise came mostly from the manufacturing sector, which unexpectedly bounced back into expansion mode, jumping to 53.3, a 39-month high. Almost all components and individual indexes jumped, including large gains in new orders (including export orders), output, and employment. Finished goods inventories grew at the fastest pace on record, as businesses expressed worry about future supply conditions amid government policy and tariff risks.
The services sector also grew robustly, albeit slightly less so, as the PM edged down to 55.4. New business (including exports) rose to the highest this year, while employment climbed to a seven-month high.
