After falling by 20% during the first half of 2022 equity markets rebounded significantly in July, the S&P 500 appreciated by over 9% during the month. Markets seemed to be interpreting large pull backs in commodity markets such as crude oil, refined gasoline, lumber and base metals as telltale signs that tighter monetary policy was having its desired effect, quelling high inflation. This combined with the two consecutive negative GDP prints we saw for both the first and second quarters led to the market developing a perspective that the Fed might soon pause its aggressive pace of rate hikes, and even start easing in 2023 in anticipation of a recession taking hold. These market views were suddenly reevaluated when Chairman Powell spoke at the annual Jackson Hole Conference where he pushed back on this market narrative. His direct comments about tighter monetary policy “will also bring some pain to households and business” made his intentions abundantly clear. Such unvarnished language from the Chairman made the central bank’s commitment to combating inflation crystal clear to market participants who had hoped for a more dovish view to be exposed.
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