The second half of Friday's session looked nothing like the first. This morning's price action was volatile thanks to Federal Reserve Chair Jerome Powell's speech at the central bank's annual economic symposium in Jackson Hole, Wyoming. Stocks climbed steadily higher throughout the afternoon, though, to end the week on a high note.
All eyes were on Fed Chair Powell this morning, who gave his Jackson Hole speech shortly after the opening bell. Powell acknowledged that it is a "welcome development" that inflation has come down from its 40-year peak of 9.1% hit in June 2022. And while he said the Fed will "proceed carefully," he stuck largely to his script from the past year that the central bank will remain data dependent, but is willing to do whatever it takes to bring inflation down, even if that means more interest rate hikes.
"Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy," Powell said in his speech.
Powell's remarks recognized the uncertain path of the long road ahead to bringing inflation back down to the Fed's 2% target, says Charlie Ripley, senior investment strategist for Allianz Investment Management.
"In recognizing the uncertain path, Powell has opened the door for more optionality over the medium term as the Fed assesses the trajectory of the economy and the effects of current monetary policy." In other words, the Fed cannot with certainty say that they are done hiking rates until they get a really good read on where the economy is headed, Ripley says.
November rate-hike expectations rise
Following the central bank's quarter percentage point rate hike in July, futures traders are currently pricing an 81% chance of a pause at the next Fed meeting in September, according to CME Group. However, the probability for a 0.25% rate hike at the November meeting has risen to 48% from 33% in the past week.
Treasury yields spiked after Powell's speech, with the 2-year yield reaching 5.095% in intraday action – its highest level since April 2007. This sent the rate-sensitive Nasdaq Composite swinging from an early morning gain of 1.2% to a 0.6% loss within a 45-minute span. However, the tech-heavy index quickly stabilized and ended the day up 0.9% at 13,590.
Similar but not as severe price action was seen in the broader S&P 500 (+0.7% to 4,405) and the blue chip Dow Jones Industrial Average (+0.7% to 34,346), with both ending comfortably higher on the day.
Nordstrom is the latest retail stock to sink after earnings
While the bulk of today's headlines revolved around Powell's Jackson Hole speech, there were some notable storylines to be found elsewhere. Nordstrom (JWN), for one, became the latest retail stock to spiral after earnings, with shares tumbling 7.7% today. The department store chain reported higher-than-expected earnings of 84 cents per share on revenue of $3.8 billion.
And while the company reiterated its full-year forecast, Cathy Smith, chief financial officer of Nordstrom, said on its earnings call that it continues "to see a cautious consumer, and it remains to be seen how changes will affect discretionary consumer spending in the second half of the year, particularly during holiday season." JWN also joined several other retailers in warning of historically high levels of theft.
Elsewhere, Rite Aid (RAD) plummeted 51.0% after a report in The Wall Street Journal indicated the embattled drug store chain was getting ready to file for Chapter 11 bankruptcy. According to the WSJ, the filing would cover the company's roughly $3.3 billion in debt, as well as the costs incurred from the substantial federal and state lawsuits it is facing for its alleged role in the opioid crisis.
Fed's favorite inflation data, Salesforce earnings on tap
Looking to next week, the second reading on Q2 gross domestic product and the June personal consumption and expenditures index (PCE) – the Fed's preferred measure of inflation – are key economic reports to watch.
As for the earnings calendar, results from blue chip tech giant Salesforce (CRM) and yoga apparel maker Lululemon Athletica (LULU) will be in focus.
