Jackson Hole 2025: Fed’s Signal Could Shift Stocks Fast

Key Points

• Powell’s Jackson Hole speech could set the tone for Fed policy and drive sector rotations in the stock market.
• Tech, small caps, and REITs may rally if Powell signals rate cuts, while banks, energy, and defensives could benefit if cuts are delayed.
• Long-term investors should look past short-term volatility and focus on secular growth themes like AI, energy transition, and healthcare.

August has been a volatile month for stocks as investors try to anticipate the Federal Reserve’s next move on interest rates. That’s why all eyes are on Jackson Hole, Wyoming, this week. On Friday, August 22, Fed Chair Jerome Powell will deliver a speech that often signals longer-term shifts in monetary policy.

With markets already pricing in a 25-basis-point cut in September, Powell’s tone is likely to spark short-term volatility. More importantly, the direction Powell signals could determine which sectors lead the market higher, and which lag behind.

Jackson Hole: A Historic Venue for Market-Moving Fed Signals

The Jackson Hole symposium is an annual event hosted by the Federal Reserve Bank of Kansas City. This is a time when central banks discuss critical global economic issues. It’s also an event that’s known for significant policy signals. For example:

• In 2010, Fed chair Ben Bernanke first hinted at the quantitative easing (QE) policy that became the dominant monetary policy for the next dozen years.

• In 2022, Powell introduced the phrase “higher for longer” when discussing the future direction of interest rates.

Normally, the Jackson Hole meeting is an ancillary event for investors. However, this year’s meeting is taking place under a muddled economic backdrop.

On the one hand, inflation is moderating but remains above the Fed’s preferred 2% target. Powell has expressed concerns that the Trump administration’s tariff policy will likely fuel inflation, which would only be enhanced by rate cuts.

On the other hand, while the “consumer” seems to be holding up, it really depends on which consumer you’re talking about. This is a bifurcated economy, and earnings season is showing that low- to middle-income consumers are under pressure.

With that in mind, investors should view this speech as a roadmap rather than a destination. Here are some ideas to consider.

What Sectors Benefit If Rate Cuts Look Likely?

Lower rates would be bullish for artificial intelligence (AI) stocks as well as other technology stocks and growth stocks in general. Many of these companies sport high valuations. However, they are also pursuing aggressive capital expenditure programs that could benefit from lower discount rates.

Another area to consider would be real estate investment trusts (REITs) and utilities stocks. Falling bond yields make their dividends more attractive to income-seeking investors.

A third sector to watch would be small-cap stocks. Many of these companies require debt to finance their operations. Lower rates provide better access to capital.

What Sectors Benefit If Powell Holds Steady?

Don’t fall for the trap that “no cuts” is bearish. Powell’s stated reason for holding the line on rate cuts is the Fed’s belief that the economy is stable and growing. If that’s the case, then there will still be opportunities for investors. These include:

• Finance stocks, particularly bank stocks: Higher-for-longer interest rates will improve net interest margins.

• Energy stocks and basic materials stocks: If the Fed signals confidence in future economic growth, commodity demand is likely to increase.

• Defensive stocks: This includes sectors like consumer staples and healthcare. Companies with reliable cash flows and strong balance sheets provide shelter during uncertain periods.

Long-Term Investors Should Look Beyond the Noise

For retail investors, the key takeaway is not to overreact to headlines. Powell’s Jackson Hole speech will likely move markets in the short term, but those swings are often temporary. The Fed’s policy path evolves over time, and betting portfolios on a single speech is rarely a winning strategy.

Instead, long-term investors may want to focus on using volatility as an opportunity, either by adding to high-quality positions during sell-offs or by rotating into sectors aligned with multi-year growth themes. Right now, that means artificial intelligence, the energy transition, or healthcare innovation. Investing in these sectors can be more rewarding than chasing Fed-driven rallies.

Ultimately, Powell's speech will provide investors with a roadmap of what is likely to come for the economy. But it’s company fundamentals that drive performance over the long haul.