Markets Mixed After Rocky Session…..

In a bumpy session, U.S. equities finished mixed on the day following the highly-anticipated speech from Fed Chairman Jerome Powell, as well as a flurry of data and headlines. The Fed Chief, as expected, unveiled new policy framework and guidance toward inflation targeting. Treasury yields traded higher as bond prices fell in the wake of the speech and the U.S. dollar was little changed, while crude oil prices nudged lower despite Hurricane Laura making landfall in the Gulf, and gold fell sharply. In equity news, Abbott Laboratories’ Emergency Use Authorization from the FDA on its 15-minute COVID-19 antigen test boosted its shares, and the markets cheered quarterly results from NetApp and Tiffany & Co. On the economic front, jobless claims remained above the 1 million mark, Q2 GDP was revised to a slightly smaller contraction than initially reported, pending home sales continued to rebound, and regional manufacturing growth accelerated more than expected. Europe finished lower, while Asian markets were mixed.

The Dow Jones Industrial Average rose 160 points (0.6%) to 28,492 and the S&P 500 Index gained 6 points (0.2%) to 3,485, while the Nasdaq Composite fell 40 points (0.3%) to 11,625. In moderate volume, 777 million shares were traded on the NYSE and 3.5 billion shares changed hands on the NASDAQ. WTI crude oil shed $0.35 to $43.04 per barrel and wholesale gasoline lost $0.04 to $1.22 per gallon. Elsewhere, the Bloomberg gold spot price was down $23.87 to $1,930.59 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was little changed at 92.99.

Jobless claims remain north of 1 million, GDP revised up slightly, Fed Chief speaks…..

Weekly initial jobless claims came in at a level of 1,006,000 for the week ended August 22nd, just above the Bloomberg estimate of 1,000,000, and compared to the prior week’s downwardly-revised 1,104,000 level. The four-week moving average fell by 107,250 to 1,068,000, while continuing claims for the week ended August 15th dropped by 223,000 to 14,535,000, north of estimates of 14,400,000. The four-week moving average of continuing claims fell by 604,000 to 15,215,750.

The second look (of three) at Q2 Gross Domestic Product the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of contraction of 31.7%, revised from the first release’s 32.9% plunge, versus forecasts to be adjusted to a 32.5% contraction. Q1’s figure was unadjusted at a 5.0% decline. Personal consumption was revised to a 34.1% decrease, slightly better than expectations of an adjustment to a 34.2% drop, from the initially-reported 34.6% fall. Q1 consumption was unrevised at a 6.9% decrease.

On inflation, the GDP Price Index was revised lower to a 2.0% decline, versus estimates calling for it to be unadjusted at a 1.8% decrease, while the core PCE Index, which excludes food and energy, was revised upward to a 1.0% drop, compared to forecasts to match the prior reading’s 1.1% decrease.

Federal Reserve Chairman Jerome Powell delivered a speech at the Central Bank’s closely-followed Jackson Hole Economic Policy Symposium. Powell unveiled the Fed’s new policy framework and, as widely expected, indicated that the Fed has decided to average inflation, rather than a simple 2.0% point target, meaning it would allow inflation to go above its 2.0% target and stay there for an extended period of time to offset the years it has been below 2.0%. In other words, the Fed is signaling that it will not raise rates to curtail inflation if and when inflation starts to rise. The big question is, can the Fed actually manage to push inflation higher? After all, it has been below 2.0% as measured by the core PCE for most of the past decade despite a raft of easy money policies from central banks all over the world.

Pending home sales rose 5.9% month-over-month (m/m) in July, versus estimates calling for a 2.0% gain after June’s 15.8% jump. Sales were 15.4% higher y/y, compared to the expected 10.8% increase. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales.

The August Kansas City Fed Manufacturing Activity Index jumped further into a level depicting expansion (a reading above zero). The index rose to 14 from July’s 3 reading, versus forecasts of an improvement to 5.

Treasuries were lower on the economic data and following Powell’s speech, as the yield on the 2-year note was little changed at 0.15%, the yield on the 10-year note rose 6 basis points (bps) to 0.75%, and the 30-year bond rate increased 10 bps to 1.50%.

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