When the Wind Shifts, Adjust Your Sails.

Powell’s Jackson Hole Pivot

As expected, Fed Chair Jerome Powell’s speech at Jackson Hole moved markets in a big way. Unlike his tone since the beginning of the year, Powell this time came across as dovish. Signaling a softer stance from the Federal Reserve and a willingness to pivot toward pro-growth policies sooner rather than later. In plain English, that means rate cuts are back on the table.

Key Takeaways from Powell’s Speech

• Rate cuts possible, but not promised. Powell suggested that slowing job growth is a real concern and could justify a rate cut soon. But he stopped short of guaranteeing one at the September meeting, emphasizing that decisions remain “data-dependent.”

• Labor market in a fragile balance. He described the job market as showing a “curious kind of balance.” Both supply and demand for workers are slowing, yet unemployment remains low. The risk, he warned, is that if weakness shows up, it could hit quickly through layoffs and a spike in unemployment. Something you want to keep an eye on at this later stage in the current credit cycle.

• Tariffs and inflation uncertainty. Powell acknowledged that President Trump’s tariffs are pushing some prices higher, but he also stated that the size and duration of the impact remains unclear.

• Fed independence. He stressed that the central bank will base decisions on data, not political pressure. An important point given Trump’s repeated public demands for aggressive cuts. Although cutting rates while tariff induced inflation is still only beginning to show up after months of being brow beaten for not cutting does sound political.

• Policy framework shift. Powell announced the Fed is abandoning the “makeup strategy” from 2020, which allowed inflation to temporarily run hot to offset prior undershooting. Given the wild swings in inflation since then, Powell said this framework no longer fits today’s reality. (The Wall Street Journal had a great article digging into this policy change. You can read it here.)

• Shifting risks. Powell concluded by noting that “the balance of risks seems to be shifting,” suggesting a policy adjustment may be required soon due to deteriorating economic conditions.

Market Reaction

Markets loved it. Stocks surged, with the Dow jumping nearly 900 points. Traders quickly increased their bets on a September rate cut.

My Take

I don’t agree with cutting rates right now. Based on what I am seeing, doing so here risks a stagflationary setup (where inflation rates remain elevated while wages stagnate) as companies protect margins in a rising-cost environment. Something I first brought up back in early May:

But this newsletter isn’t about what I think of the Fed’s choices. It’s about how to adapt and profit as the environment changes.

When the wind shifts, a good sailor doesn’t argue with it. He adjusts the sails. That’s the mindset to have right now.

A Familiar Setup: Then and Now

Since the data is telling me that we are in the process of moving to a Secular Bear from a Secular Bull, I am anticipating a much different end of cycle this time around than what is “typical.”

The last time this happened was the late-90s to early 2000s. At that time there was a hot new product that would eventually revolutionize the entire world, but most had no idea what exactly it was, how to use it optimally, or just how dramatically it would change everything. It was called the internet.

Most may not have not known much about the internet at the time, but that didn’t stop money from being plowed into stocks for what was one of the most amazing runs in stock market history. Predicated on low borrowing costs, a new world changing technology, easier access to stock markets for all, and extreme speculation.

Sound familiar? If not, substitute the internet with AI and this is exactly what is happening today.

To give you an example of just how extreme stock gains during this period were, the Nasdaq 100 $NDX ( ▲ 0.72% ) , gained over 350% from the Oct ‘98 lows until it’s peak less than a year and a half later in March ‘00. To put that into perspective, the Nasdaq has averaged ~18% per year from 1986-2024.

While I think today’s similar type move has already begun, I think that we are maybe at the midway point and that there is still plenty of juice left to be squeezed.

Of course, the last time this happened it turned into the “DotCom Crash” as these things typically do when they end, but we can deal with that later. Instead it looks like there’s money to be made in the near future. Money that can help you combat what appears to be higher goods and services prices in the coming months and years.

What to Watch in the Coming Weeks

• PCE report: Aug 29

• PPI report: Sept 10

• CPI report: Sept 11

If PCE and CPI stay under 3% year-over-year and PPI remains below 3.75% in their next reports and the jobs market does not strengthen in the next four weeks, then I would expect the Fed to cut rates at its Sept 17 meeting.

Should that happen, here’s one path that could play out:

• Markets drift higher into the announcement.

• The initial rate cut turns into a “sell the news” event, where markets initially pop higher on the announcement of the cut and then sell off later that day or the next for an extended period of time.

• Should this happen, I’d expect that market correction to last until sometime in Oct/Nov.

• Once markets bottom in Oct/Nov, I’d look for an epic rally into year-end and possibly into early spring.

One caveat: if unemployment suddenly jumps above 4.5% and the labor market deteriorates rapidly, then all bets are off. As that would be a clear recessionary signal.

Positioning for What’s Ahead

Longer term plays: Gold and other Commodities

When inflation is the theme, gold shines. Some of the best market analysts which specialize in commodities see gold reaching $8,000 at some point over the next decade (from ~$3,400 today). That may sound extreme, but secular bear markets (long periods of roughly a decade) often coincide with persistent inflation. We’re likely shifting from a secular bull market (which began in 2013) into a secular bear, making gold, copper, natural gas, and nuclear four of my long-term favorites. Gold, due to higher inflation. Copper, due to the need to rebuild and drastically strengthen the US power grid. Natural Gas to help meet the surging demand in power until more nuclear plants come online. Nuclear energy to meet the surging power demand from AI and data centers.

Other than buying physical gold, you can also play the move using the gold ETF, $GLD ( ▲ 1.06% ) .

Sectors and assets which have my attention right now.

• Commodities: Copper, Gold, Oil (eventually)

• Gold miners

• New tech: AI, drones, 3D printing

• Energy: Nuclear, Natural Gas

• Healthcare

• Crypto

• Real estate and homebuilders

That said, I don’t think now is the best entry point for everything. My bet is that lower prices might be available in the coming months, especially if September brings that “sell the news” correction.

But that’s a good thing, because it will give us time to explore some potentially great opportunities. Opportunities which I will be writing about here. Entries and price targets included when the time is right for each.

A Word on Timing

The hardest part of cycles that end like this is selling. When the time comes, every fiber of your being will scream “hold on, it’s still going up!” The key is to let the market tell you. A nasty “green-to-red” day after a strong open on a great economic report can be your signal that the run is over. Typically bull markets die on good news, much like bear markets die on bad news. Cut bait too early, and you can leave some serious gains on the table. Sell too late, and you’re stuck in a years-long nightmare of a drawdown while you lie to yourself that it is almost over all along the way.

If you’ve got risk capital that won’t change your life if lost and have limited to no experience trading, this looks to be setting up to be one of those rare windows where even rookie mistakes get forgiven by a raging bull market. Just don’t confuse that with invincibility, intelligence, or skill.

If you’re wondering what “risk capital” is or how much it constitutes, I liken it to “Vegas money.” As in, if you lose it all it’s not a big deal because you had a great time in the process. Whereas, in the markets it’s an education instead of a 3 to 4-day party.

As always, I may be wrong. Then again, I may be right.

I may not agree with the changes in policy, but if everyone is going back for “one more drink,” then I’m not going to miss the party. What’s the worst that can happen?

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