For anyone expecting Powell & Co. to spill this morning on the extent and pace of future rate cuts, don’t hold your breath. Since assuming the chair four years ago, Powell has become increasingly adept at avoiding any substantive revelations.

Of course, sometimes investors draw their own conclusions, which can make for interesting trading sessions. Yesterday, for instance, SPX tumbled nearly 1% as algos consolidated recent gains. This morning, those same algos have recovered 2/3 of those losses as they position for any Jackson Hole surprises.

No one know exactly what Powell will say or what the Fed will do over the next several months. Though, we know what they should do given the inflation surprises ahead. continued for members…

Our expectations have remained the same all year: TPTB, which would rather not return to the turbulence of the Trump presidency, will work to keep stocks rising into the election. This means a steady manipulation of the algo drivers over which they have some control: VIX and currencies.

The thing they don’t have a lot of control over is oil/gas prices – which are set to deliver favorable YoY price drops through October/November before reversing and delivering price gains.

This scenario would have the effect of bringing inflation and interest rates down as we head into the election, thus ensuring positive stock returns and all-time highs as impressionable voters head to the ballot boxes.

There are two alternative scenarios which bear repeating. First, the Saudis – who arguably favor Trump – could put their finger on the scale in order to drive prices higher, thus making it difficult for the Fed to lower rates in September. Though, the recent price trends seem to indicate otherwise.

The other more onerous scenario is that the war in Gaza expands to include Iran and oil/gas prices shoot higher. Different cause, same effect. A second US aircraft carrier arrived in the region yesterday.

Either scenario would make the backward looking inflation reads less compelling and, thus, rate cuts less likely. If rate cuts were to be off the table for the balance of 2024, stocks would not be amused.

With SPX only 2% away from its IH&S target of 5727 (ES is 5% away from its at 5934) investors would do well to reassess their exposure.