My FINAL Warning: Prepare for the Fed Tomorrow.
Overall Thesis
Markets are likely to rally after the Jackson Hole Fed meeting tomorrow unless there is a hawkish surprise, with base case and dovish scenarios supporting upside movement due to event clearing.
Narratives
Kevin argues that Fed officials like Miran and Waller are politically motivated to avoid a rate hike before the election, and that Jackson Hole will likely be a non-event or dovish 'clearing event' that lets markets rally. He believes the base case is no hike in September and that stocks should move higher once the Fed event passes.
Key Arguments
- Market-implied odds show only a 33.9% chance of a September hike and a hawkish Miran setup suggests the Fed wants to avoid hiking before the election
- Most hawkish Fed members (Logan, Hammack, Kashkari) are known dissenters whose views are already priced in, so their comments don't change the outlook
- Google's weak stock reaction to its bond/money raise suggests financial conditions are already tightening without a hike
Predictions (1)
Kevin expects a near-term 'hardware rally 2.0' driven by AI infrastructure spending (from Google, SpaceX, Nvidia-linked capex) to push the Nasdaq to new all-time highs over the next several months, even as he simultaneously worries about a longer-term AI bubble.
Key Arguments
- Massive capital raises from Google and SpaceX will flow into infrastructure spending, benefiting hardware names
- Fed likely to avoid rate hikes near-term, providing a supportive macro backdrop
- Software sector believed to be bottoming, adding to bullish momentum
Predictions (1)
Kevin is near-term bullish on Nvidia as part of the broader AI hardware rally, but expresses longer-term skepticism that the AI spending foundations (built on OpenAI and Anthropic) are sustainable, expecting an eventual unwind.
Key Arguments
- Near-term spending from Google, SpaceX, and AI infrastructure buildout supports a hardware rally
- Long-term revenue foundations depend on high-margin frontier labs like OpenAI and Anthropic, which he views as unstable
Predictions (1)
Kevin points to Google's large bond and stock money raises (including a 100-year bond) as a sign that financial conditions are tighter than they appear, since Google's stock fell on the news rather than rallying, which he uses as evidence the Fed doesn't need to hike.
Key Arguments
- Google's $84B raise (including a 100-year UK bond) was followed by stock weakness, suggesting the market isn't rewarding excessive capital raising
- This is used as evidence that financial conditions are already tightening without Fed action
Hedges & Caveats
- Acknowledges rare 'rug pull' risk where hawkish surprises could cause downside (as occurred in 2022)
- Notes market volatility and uncertainty between now and the Jackson Hole meeting
- References historical precedent of unexpected Fed outcomes at Jackson Hole
- Mentions three remaining Fed meetings through December that could impact markets
- Recognizes that while event clearing typically supports rallies, surprising hawkish guidance could reverse this pattern