Thanks to everyone who responded to our survey. Please hit us back with feedback or questions you’d like to see asked – our goal is to help, after all.
Quick summary, respondents:
Financial Conditions & Jackson Hole: 70% of the respondents to our poll expect Powell to tighten financial conditions at Jackson Hole next week (Thursday 8/25 – Saturday 8/27). At the same time, investors don’t think other investors have the same conviction. But the consensus in our survey is clearly for hawkish Fedspeak next week.
Our call is for financial conditions to tighten. The Fed has been clear that priority 1 is taming inflation and the dramatic easing in financial conditions over the past month is incompatible with that goal. The Cyclicals/Risk-on rotation can continue if data over the next week reinforces the no-recession narrative. But even if inflation expectations remain stable, the recent easing of financial conditions increases the risk of a Powell sounding hawkish at Jackson Hole. Investors are starting to internalize that outcome, which suggests higher near-term volatility.
Reasons for a Sell-off: Investors think higher/persistent inflation and a more hawkish Fed will cause a sell-off, which is interesting to note given expectations for a hawkish speech next week. Weak economic data was the next most but still much less popular. Firm data recently has significantly reduced concerns that the economy is on a march toward a deep recession. That limits downside risk (we put fair value between 4200 to 3800) unless the Fed gets VERY hawkish. A few respondents also noted strong economic data begetting a response from the Fed, but more were concerned with weak economic data.
Reasons for a Rally: Likewise, a majority of our respondents think lower inflation/Fed easing will cause a further rally in equities. Strong economic data was the third most popular theme, and although strong data reduces near-term recession risk, we would note it exacerbates the Fed’s inflation problem. Strong earnings and a FOMO/positioning rally were mentioned too.
Oil: 2/3 of investors polled expect the next 5% move in oil to be higher. Higher commodity prices were noted as an area of concern in our sell-off question. More investors expect an oil shock higher than they guess their peers expect.
