Asia tech stocks slide tracking Wall St losses amid AI doubts, govt. uncertainty
The Jackson Hole Economic Symposium, hosted by the Federal Reserve Bank of Kansas City, is an annual event in which central bankers from the Fed and around the world gather with policymakers, economists, and financial market participants to discuss economic issues.
At times, such as today, when monetary policy is in flux, the meetings serve as a way for the Fed to signal changes in its monetary policy directions. Accordingly, the opening speech from the Fed Chairman will be well followed. At this week’s meeting, the assumption is that Jerome Powell’s opening speech will show he is more likely to cut rates at the September FOMC meeting. Consider the following:
- Cooling Labor Market: The July BLS employment data and the sharply revised prior months point to much more weakness in the labor market than the data the Fed had in hand at their last FOMC meeting. In the past, Powell has noted that a weaker jobs outlook could prompt him to cut rates.
- Inflation: While PPI rose sharply, CPI and PCE are not yet rising to the point of concern for the Fed. Tariffs are certainly playing a role, but the initial readings do not confirm the Fed’s fears. That could change as more data comes to light.
- Market Expectations: As we share below, the market is pretty certain (85%) that the Fed will cut rates in September. While Powell is likely to avoid making commitments to cut rates, he may want to steer markets in that direction and avoid creating volatility. Often, the Fed tries to lead the market toward the Fed’s current line of thinking.
- Political Pressure: We are not sure how much President Trump persuades Powell, but easing would relieve him of some political pressure.
Momentum Isn’t Always The Right Strategy In A Bullish Trend
Many investors tend to think that momentum strategies in upward-trending markets are a good bet. While that can be the case sometimes, it isn’t always. For example, in the current environment, we have seen rapid rotations between sectors and factors. Yet, despite sitting near record highs, momentum strategies have had middle-of-the-road relative scores.
Momentum strategies do best when price trends are persistent, and importantly, when a distinct group of stocks, be it sectors and/or factors, consistently lead the market higher. Momentum uses historical price data to assess momentum. Thus, when investors are rotating rapidly, buy signals can occur as the most popular sector or factor is peaking in popularity.
Thus, momentum strategies pick up on trends when they are late in their cycle. Momentum works best when we can get those trends early in a cycle.
As we share below, the momentum factor is slightly oversold versus the market. Furthermore, its absolute score is overbought, but decently below the higher beta and large-cap growth stocks currently leading the market. We can see why the momentum strategy is underperforming in the second graph.
While it does have market-leading stocks like Palantir Technologies (NASDAQ:PLTR), Meta Platforms (NASDAQ:META), and Broadcom (NASDAQ:AVGO), it also holds yesterday’s leaders like Philip Morris International (NYSE:PM) and Netflix (NASDAQ:NFLX).
Tweet of the Day
