Why Fed's Powell speech on Friday likely matters less for stocks than a sputtering housing market

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Inflation, job losses and the cooling housing market are top factors that could drive a U.S. recession, according to Charles Schwab's Kevin Gordon.

Wall Street has been fixated on what Federal Reserve Chairman Jerome Powell might say Friday at the annual Jackson Hole, Wyo., economic symposium for clues about the central bank’s next steps on interest rates.

While the speech will matter, stock-market investors should also pay heed to weaker U.S. economic data, including falling home prices and slumping sales that point to a sputtering housing market, said Kevin Gordon, senior investment research manager at Charles Schwab & Co., in an interview Wednesday.

“The downside is the negative ripple effects, and how much of a role housing plays in the wealth effect,” Gordon said. The big debate now is whether a U.S. recession already has been priced into markets. The sharp summer rally in stocks in July and early August has been largely on pause in recent sessions, even after the S&P 500 index SPX and Dow Jones Industrial Average DJIA on Monday booked their sharpest daily declines in about two months.

The market has been pricing in roughly a 3.75% peak policy rate by mid-2023, from a 2.25-2.50% range currently, he said, with a “fairly quick reversal of some of those hikes” later in the year.

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