Two huge market events happened to occur during one of the sleepiest weeks of the year.
Nvidia’s eagerly awaited earnings and Federal Reserve Chairman Jerome Powell’s equally-as-anticipated Jackson Hole speech managed to wake Wall Street from its summer snooze, ultimately snapping the S&P 500’s three-week losing streak.
But the latter, in particular, has largely left investors none the wiser. Powell reiterated that inflation remains too high and said the Fed will “keep at it until the job is done,” and is prepared to raise rates further if needed.
While hawkish in its tone, it was a speech devoid of answers. Powell’s vagueness, and the Fed’s data-dependent approach means investors will have to wait for the answers they crave about the future path of interest rates.
It may not be a long wait, with the Fed’s preferred inflation metric released Thursday, and August’s jobs report Friday. Economists expect the core personal consumption expenditures (PCE) price index to rise at an annual rate 4.2%, up from 4.1% the previous month. That would certainly point to a more prolonged inflation battle ahead.
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The market remains confident the Fed will pause interest rates when it meets next month—80% sure, according to the CME’s FedWatch tool. However, the probability of a hike at the Fed’s November meeting climbed to 51% early Monday, from 38% a week ago.
Economic data in the coming days can shift those odds, and move markets, particularly in a week that sees the end of August and its historically sleepy trading volumes.
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*** Join Barron’s deputy editor Ben Levisohn today at noon when he talks with senior writer Al Root about what comes next for the stock market as Jackson Hole recedes and payrolls loom, while taking time to consider where Tesla goes from here. Sign up here.
Try your hand at this morning’s Barron’s digital jigsaw, which is based on the week’s cover story. For all games, including the daily crossword and sudoku, click here.
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Jobs, Inflation Data to Factor in Next Rate Decision
Fresh labor market and inflation data are coming out this week, and economists will be analyzing the numbers and their potential impact on the Federal Reserve’s thinking heading into the Federal Open Market Committee’s meeting and interest-rate decision from Sept. 19-20.
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- On Tuesday, the Bureau of Labor Statistics will publish the results of its July report on job openings. Economists are forecasting openings to hold about flat from a month earlier, around 9.5 million, which would be the lowest since mid-2021.
- The ADP private payrolls report is due out on Wednesday. Analysts expect it to say employers added 200,000 jobs in August, which would be down from 324,000 added in July and the lowest number since March.
- The next reading of gross domestic product for the second quarter is also due out on Wednesday. Analysts expect the number to stay the same as an earlier estimate, with economic growth rising 2.4% from the prior quarter.
- The Bureau of Economic Analysis’ core personal consumption expenditures price index, the Fed’s preferred measure of inflation, is coming on Thursday. It is forecast to be up 4.2% from a year earlier. Income is expected to rise 0.3% from the prior month.
What’s Next: On Friday, economists polled by FactSet expect the government to report a gain of 172,500 jobs for August, a slowdown from July’s 187,000 jobs. The unemployment rate is forecast to hold steady at 3.5%, and average hourly earnings are seen rising 0.4% from the prior month, matching July’s pace.
—Nicholas Jasinski, Connor Smith, and Janet H. Cho
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This Legislation Could End Credit Card Rewards System
The Credit Card Competition Act, aiming to change how credit card transactions are currently processed, could also potentially wipe out the credit cards rewards system, disappointing big spenders who rack up and redeem the most points and those who use points for travel.
- The largest banks paid $35 billion in rewards in 2019, the Fed said. Critics of the current interchange system say it lets the banks that issue cards charge fees of up to 3% of each transaction. The Act wasn’t included in the defense authorization act but could resurface.
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and
have a near duopoly on such transactions. The legislation proposed by Sen. Dick Durbin (D., Ill.) would open the infrastructure to more payment processors, letting retailers contract with those that charge lower fees.
- TD Cowen analyst Bryan Bergin said further regulating credit card issuance will end credit card rewards programs. A 2019 paper said free checking account offers dropped by 40% after “Durbin’s Amendment” capping debit card fees was passed in the 2010 Dodd-Frank legislation.
- Brian Kelly, CEO of The Points Guy, said most Americans have rewards programs, including for cash back. Ending rewards programs would be a big loss for the banks that rely on heavy-spending clients, said Richard Vague, managing partner at Gabriel Investments.
What’s Next: TD Cowen doesn’t think Durbin’s efforts will succeed this year, but its Washington analysts recently said risk is rising long-term to the current credit card interchange model as retailers increasingly argue the system benefits big banks and hurts consumers.
—Janet H. Cho and Penta
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Elon Musk Takes a Self-Driving Spin for Zuckerberg Hunt
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CEO Elon Musk took a self-driving spin in a Tesla through the streets of Palo Alto, Calif., posting a 45-minute video of the journey to his social media platform X, the former Twitter. At one point he joked about finding
CEO Mark Zuckerberg’s house, but he didn’t.
- Musk narrated the drive, in which he demonstrated the beta version of Tesla’s Full Self-Driving, or FSD, software. He said Tesla engineers didn’t program how to handle speed bumps, stop signs, or roundabouts, but trained the system with video, an example of how the EV maker is using AI.
- Barron’s counted one human intervention: Musk had to take the wheel at a stoplight when the car started to proceed straight on an advanced green for left turns, a sign for which the system still needs driver supervision 100% of the time. Musk’s video had 10.8 million views as of Sunday.
- Musk joked about running into Zuckerberg and challenging him to “hand-to-hand combat” to “spice it up,” referring to a cage fight for charity between the two that now seems unlikely. He searched online for Zuckerberg’s address, but didn’t find it.
- Elsewhere in the sector, EV start-up Polestar Automotive selected
to provide the “Mobileye Chauffeur,” designed to help cars drive themselves, on its Polestar 4, coming in 2025. Mobileye aims for a cost below $6,000 for each car.
What’s Next: The FSD Beta version isn’t widely available to the public yet. Tesla drivers must first pay for FSD either as a one-time $15,000 payment or as a subscription of up to $199 a month, to request FSD Beta.
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’ Ultra Cruise product is targeting similar capabilities.
—Al Root and Janet H. Cho
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China Cuts Tax on Stock Trading to Boost Market
Chinese stocks climbed on Monday after the government said it would reduce a tax on trading and take other steps to boost its capital markets.
- China’s Ministry of Finance on Sunday said it would halve stamp duty on securities transactions, to 0.05%, starting Monday. It’s the first time it has lowered the tax since 2008.
- The measure is designed to “invigorate the capital market and boost investor confidence,” according to the Chinese government-backed Global Times newspaper. China’s securities regulator also plans to limit new listings, which could help balance supply and demand, and relax margin rules for buying securities.
- The move is the latest in a series of efforts to lift confidence among Chinese investors in the face of the country’s sputtering economy and ongoing tensions between the U.S. and China. It did appear to lift sentiment, as Hong Kong’s Hang Seng Index closed 1% higher and the Hang Seng Tech Index rose 1.7%.
What’s Next: China’s reforms might not be enough to build long-term confidence from overseas and domestic investors as they watch for the potential fallout from the company’s ailing property sector, which represents 70% of Chinese households’ wealth.
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Catastrophic Weather Is Bearing Down on the Insurance Industry
Florida represents two trends that have put American households in the middle: calamitous weather and a rapidly shifting insurance industry. Prices are rising, coverage is shrinking, and bad weather events are more frequent and intense, leaving people scrambling to find affordable coverage for their property.
- Homeowner insurance premiums are rising nationwide. They average $1,700 this year, up 10% since 2022 and 36% since 2018, according to the Insurance Information Institute. Coverage is also getting stingier as insurers tighten terms.
- The price hikes reflect a 55% increase in home replacement costs from 2019 to 2022. Losses from natural disasters covered by insurance reached $120 billion last year, well above average for the prior five years, according to Munich Re. Hurricane Ian cost $60 billion in insured losses alone.
- For the reinsurance industry, Ian was a tipping point as firms used the flood of claims to hike rates sharply on front-line insurers. Reinsurance rates in the U.S. are up 50% versus a year ago, and there are stiffer conditions for payouts to insurers.
- So far this year, there have been 15 weather episodes with losses exceeding $1 billion each in the U.S., the National Oceanic and Atmospheric Administration said—up from an annual average of eight from 1980 to 2022. Bank of America recently raised catastrophe loss forecasts for P&C insurers.
What’s Next: Tropical Storm Idalia was strengthening in the Gulf of Mexico Sunday, heading for Florida. It is forecast to make landfall as a hurricane as soon as Wednesday. Florida Gov. Ron DeSantis has urged residents to prepare and declared an emergency in 33 counties along the Gulf Coast.
—Lauren Foster and Liz Moyer
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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Callum Keown