Rotating Market Betting On Pivoting Powell

This is what Fed Chair Jerome Powell is likely to say at his presser tomorrow: "The economy has been stronger than we expected and the labor market remains solid. Inflation is getting closer to our 2.0% target, but it isn't there yet. We didn't cut the federal funds rate at this meeting of the FOMC, but we might do so at the September 17-18 meeting if the next two CPI's get us closer to our inflation target." That's what the market expects him to say directly or to strongly suggest. If so, then the S&P 500 might continue to churn below its July 16 record high as investors continue to rotate out of the Magnificent-7 into everything else. Then again, he might push back on the widespread belief that there might be more than one rate cut over the rest of this year.

After all, today's employment indicators suggest that the labor market is in good shape. To some economists, it seems to be weakening. To us, it seems to have normalized. In July's Consumer Confidence Index survey, the percentage of respondents agreeing that "jobs are plentiful" did fall to 34.1% from 42.8% in February, while the percentage saying "jobs are hard to get" edged up to 16.0% (chart). That means that 49.9% believe that jobs are available, which is slightly above the historical norm of 48.1%.