Why this abstract concept could rattle stocks when Powell speaks at Jackson Hole

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Investors and traders are looking for Federal Reserve Chairman Jerome Powell to address where he sees the neutral rate of interest during his speech on Friday.

There’s one big, but theoretical, concept that has the potential to shake up the stock market the most on Friday, when Federal Reserve Chairman Jerome Powell is scheduled to deliver a speech at an annual symposium held in Jackson Hole, Wyo.

Traders and investors are well aware that the Fed is likely to keep interest rates higher for longer, and they’ve pushed out their expectations about the timing of the first rate cut next year, according to Dan Eye, chief investment officer for Pennsylvania-based Fort Pitt Capital Group, which manages $4.9 billion in assets.

As of Wednesday afternoon, all three major stock indexes were higher, led by a 1.4% advance in the Nasdaq Composite as investors await a fiscal second-quarter earnings announcement from chip maker Nvidia Corp. NVDA, +2.74% that’s due after the close. In the run-up to Friday’s Jackson Hole speech, the Treasury market has already priced in a scenario of better-than-expected U.S. economic growth, with 10- and 30-year yields reaching multiyear highs on Monday and last week. Though both yields pulled back on Tuesday and Wednesday, they could bounce back again if investors sell off long-dated government debt in response to Powell’s remarks, investors said.

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