Wall Street Flat as Investors Await Jackson Hole

The US stock market closed Monday, 18 August,  flat due to a lack of major earnings and economic releases. Investors also shrugged off the meeting in Washington between US President Donald Trump and Ukrainian counterpart Volodymyr Zelensky, as it did not lead to a ceasefire or sanctions.

Wall Street traded at its lowest daily volume since May due to summer vacations ahead of key earnings reports from major retailers and the FOMC minutes on Wednesday. However, all eyes remain on Federal Reserve Chair Jerome Powell as he is slated to speak at the Jackson Hole Symposium (JHS) on Friday, 22 August.

Meanwhile, the Russell 2000 (RTY) outperformed the major US indices, S&P500, Dow Jones, and Nasdaq. The small-cap index experiences a rotation in August as concentration in the Magnificent Seven stocks wanes. Bank of America (BAC) analysts expect this to continue as the index has yet to reach a record high, but they see a Fed interest rate cut as an early signal of a “downturn.” (Source: Yahoo Finance)

TL;DR

• Wall Street ended nearly flat on Monday, with trading volume at its lowest since May.

• Investors are waiting ahead of Powell’s Jackson Hole speech on Friday.

• Russell 2000 (small caps) outperformed as money rotated from the “Magnificent Seven.”

• Trump and Zelensky’s meeting raised hopes for a Ukraine ceasefire, but there has been no breakthrough.

• Odds of a September Fed rate cut slipped to 83% after mixed inflation data.

• Oil prices dipped on possible Ukraine-Russia peace progress, but remain volatile.

• Analysts warn a hawkish Fed could trigger a market pullback and potential sector rotation.

Trump-Zelensky Meeting Raises Ceasefire Hopes

Despite a “very good” talk between Trump, Zelensky, and European leaders at the White House on Monday and a subsequent phone call with Russian counterpart, Vladimir Putin, to arrange a trilateral meeting, investors remained cautious ahead of the JHS meeting in Wyoming on Friday. 

On the one hand, optimism for a ceasefire increased after Trump finally agreed to security guarantees. But on the other hand, Ukraine remains undeterred in its decision to give up territory as part of any deal with Russia, which was a precondition set by Putin during their 1-to-1 meeting with Trump in Alaska last Friday, 15 August. Trump has also continued to disapprove of Ukraine's NATO membership.

The potentially soon-to-come trilateral meeting is still seen as progress towards lasting peace. However, sentiment around the high-stakes meeting will have broader repercussions in the stock and oil markets. But for now, all eyes remain glued on Powell’s speech. 

Will Powell be Dovish at Jackson Hole?

Powell will take centre stage on Friday at his last JHS presser as the Fed Chair on the topic of “Labour Markets in Transition.” This theme is central to Powell's challenge to fulfil the Fed’s dual mandate of price stability and maximum employment while Trump pressures him to reduce interest rates. His comments have become even more crucial ahead of the September meeting after a dovish CPI reading followed by a hot PPI that weighed on the odds of rate cuts. 

A week ago, the chances of a September Fed rate cut stood at 94%, at 83% as of 19 August. However, the latest jobs market data ahead of both CPI and PPI did bolster the probability of a September cut, with Treasury Secretary Bessent even calling for a 50 basis point cut. Investors hope to gain some insights from the Fed ahead of the event during the FOMC minutes on Wednesday. However, regardless of how the odds change for a September cut, investors might still be disappointed if Powell maintains a hawkish stance by signalling to opt out of a consecutive rate cut in October. A less dovish interpretation could weigh on markets.

What Geopolitics and Fed Could Mean for Markets?

With stocks at record highs, several analysts believe that a hawkish tone is not priced in. Any sort of Fed caution could see stocks falter, with projections seeing the S&P 500 sliding as much as 5% to 6100. BAC thinks a hawkish narrative could rotate flows into defensive and secular growth stocks, before the run comes “closer to done,” in a similar fashion to the dot–com bubble. The index is held up by the top 20 holdings, which have risen over 40% since the bottom of April, while the index increased by 28%. However, traders also keep an eye on geopolitics as a source of market volatility.

Some Japanese and European equities were up in earlier trading on Tuesday, 19 August, on the back of positive sentiment from Ukraine’s meeting in Washington. If Trump manages to strike a deal between Ukraine and Russia, reducing the likelihood of Russian sanctions remaining in place, oil prices could drop another $3 to $4 per barrel, according to Citi(C). A potential ceasefire dragged on WTI (CL) and Brent (EB) on Monday, which declined by 0.8% and 0.7% respectively. Conversely, if the talks go sour and sanctions towards Russia worsen, oil prices could increase above $80 per barrel. 

*Past performance does not indicate future results.

*The above are only projections. Only time will reveal what lies ahead.