Markets, housing – and you – should listen carefully to Jerry Powell

Financial markets had a big rally last week, and for once the Federal Reserve had very little to do with it.

You may recall that stocks went down on August 5th: The Dow dropped over 1,000 points. The S&P 500 and Nasdaq Composite fell more than 3 percent each. Global markets were jittery, especially after Japan’s Nikkei 225 fell 12% in one day.

Fears arose: a recession was about to break out. Several experts called for the Fed to say something — anything — to reassure investors. Some have begged for an emergency Fed meeting to cut interest rates.

The Fed said, well, nothing, or almost nothing. The rates were left alone.

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Investors and pundits were left to decide that the unrest was a one-off, and markets recovered by the end of that week.

The stock just finished with its best weekly showing since early November. The Dow rose 2.3%. The S&P 500 rose 3.9%. The Nasdaq rose 5.3%. The closing levels were basically where the markets had ended on August 2nd.

And the concern about August 5th? Did something happen on August 5th?

On Friday morning, Fed Chairman Jerome Powell will finally speak to cap off a week that features several economic and earnings reports that could move markets.

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The Fed chairman’s remarks will take place at the annual Jackson Hole Symposium of central bankers, held by Wyoming’s Grand Teton Mountains. Powell is likely to talk about the progress made by the United States on the inflation front.

Hear the hints he’s likely to drop about the widely expected rate cut to be agreed to at the Fed’s Sept. 17-18 meeting.

Speculators are betting that the Fed’s key federal funds rate will be cut to 5% to 5.25% from the current 5.25% to 5.5%.

Bond yields have fallen steadily, if slowly. The 10-year Treasury yield ended Friday at 3.95 percent, a week earlier and more importantly down 22 percent from the 5 percent level reached in October 2023.

Mortgage rates have also fallen. The 30-year mortgage was around 6.6% on Friday, according to Mortgage News Daily. A survey released Thursday by Freddie Mac, which provides capital to the mortgage industry, said the rate was about 6.5 percent.

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On a $250,000 mortgage, that translates to a monthly interest and principal payment of about $1,580, down nearly 9.8 percent from April, when rates were 7.5 percent.

The downturn may not have pushed potential homebuyers to call brokers to view homes. The pandemic and higher mortgage rates have dampened sales since the start of 2021. But refinance applications are up 35% in one week.

Powell’s speech will be the last big housing event of the week. Also of great interest will be:

• The July existing home sales report from the National Association of Realtors is due Thursday morning. Consensus is for a sales rate of 3.92 million units, up slightly from June. Sales have been sluggish since the Fed began raising interest rates in 2022. Sales in June fell 5.4 percent from May. At the start of 2021, the sales rate was 6.2 million units.
• The Commerce Department’s new home sales report, also for July, is due Friday morning before Powell speaks. The estimate is for a rate of sales of 628,000 homes, apartments and the like, up 1.8 percent from June.

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The minutes of the last Fed meeting in July will also be published on Wednesday. They will also shed light on the central bank’s stances on inflation and interest rates.

Palo Alto Networks’ earnings may decline as revenue rises

The biggest earnings report of the week this week may come from Palo Alto Networks (PANW) the big cyber security firm.

The company’s ambitions are high because the task is so great. Cybercriminals can be in and out of a company’s infrastructure in as little as three hours, CEO Nikesh Arora told a security conference in June.

The company is expected to report $1.41 per share in the fiscal fourth quarter, down from $1.44 a year ago. Revenue is expected to rise 10% to 11% from a year ago to $216 billion.

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Lowe’s and Target Top Earnings Calendar

Home Depot (HD) Starbucks (SBUX) and Home Depot (HD) noted in earnings presentations last week that many clients are more cautious about spending as the national economy shows signs of slowing.

Two of next week’s bigger reports could discuss this question in earnings reports and presentations as well.

Lowe’s (LOW) drops tuesday and target (TGT) on Wednesday, he will likely acknowledge this reality as well.

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Shares of Lowe’s rose 8.4% in 2024, but fell 1.8% in August. Home Depot’s main rival, it has a strong franchise across the country. Earnings are expected to be $3.96 to $3.98 per share, down from $4.56 a year ago. Revenue is pegged at $23.96 billion.

The target is up 1.1% this year but fell 4.2% in August. The giant retailer is still struggling to turn the business around after years of bad luck. The good news is that the consensus estimate for second-quarter earnings is $2.19 per share, up 53% from $1.43 a year ago. Revenue is projected at $25.2 billion, up 1.2% from a year ago.

Also reporting this week

• Estee Lauder cosmetics company (HE) . Earnings on Monday. EPS estimate: 25 cents, up from 7 cents a year ago.
• Manufacturer of medical devices Medtronic (MOT) Earnings on Tuesday. EPS estimate at $1.20, unchanged from a year ago.
• Discount retailer TJX (TJX) . Wednesday’s earnings. EPS estimates at 92 cents, up from 85 cents a year ago.
• Department store operator Macy’s (m) . Wednesday’s earnings. EPS estimates of 31 cents, up from 26 cents a year ago.
• Fashion retailer Urban Outfitters (URBAN) . Wednesday’s earnings. EPS estimate: 97 cents, down from $1.10 a year ago.
• Intuit software company (intuit) . Earnings on Thursday. EPS estimate: 54 cents, up from 40 cents a year ago.

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