Stocks closed sharply lower on Friday with all of the indexes down by -3% or more (the Nasdaq was down by -4.15%).

And they were all down for the week. This marks the second down week in a row.

The day started off fine enough. The Personal Income and Outlays report showed Personal Consumption Expenditures (PCE) up 0.1% m/m vs. last month's downwardly revised 1.0% and views for 0.4%. The PCE Index dipped -0.1% m/m vs. last month's 1.0% and views for 0.1%. On a y/y basis, the PCE Index came in as expected with a 6.3% increase. But that was lower than last month's 6.8% pace. (The Core PCE Index (ex-food & energy) was up 0.1% m/m vs. last month's 0.6% and the consensus for 0.3%. On a y/y basis it was up 4.6% vs. last month's 4.8% and the consensus for 4.7%.)

In spite of the better than expected reading, inflation does still remain near 40-year highs.

Jerome Powell's Jackson Hole speech, however, weighed on stocks. Quite frankly, he didn't say anything that he hasn't basically been saying all along. But the words he used on Friday gave pause to the market. Specifically, his use of the word "forcefully" when talking about the Fed's commitment to fight inflation, and his acknowledgement that it will "bring some pain to households and businesses." He followed it up by saying "these are unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain."

But again, his comments that "we are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%," was consistent with what he has said in the past.

Given those comments, the expectation for a 75 basis point rate hike in September is now the consensus. But the jury is still out on the trajectory after that. Not just for the November and December FOMC meetings, but for 2023 as well. Because it's unlikely inflation will be at 2% by year's end. And Mr. Powell continuing his assertion that they will look at the incoming economic data to decide on their path moving forward, keeps things open ended.

But the one thing that was clear, is they will not stop until inflation has been beaten. And at this juncture, that means getting it back down to 2%.

In other news, Retail Inventories were up 1.1% vs. last month's 1.9%. And Wholesale Inventories were up 0.8% vs. last month's 1.9% and views for 1.3%.

And Consumer Sentiment rose to 58.2 vs. last month's 55.1 and views for the same.

In spite of Friday's drop (and the pullback over the last two weeks), stocks are still up solidly from their June lows. As it stands, the Dow is up 7.87%, the S&P is up 10.7%, the Nasdaq is up 14.1%, and the Russell 2000 is up 15.2%.

Although, for perspective, the market is also still down from their all-time highs with the Dow down -12.3%, the S&P down -15.4%, the Nasdaq down -24.4%, and the Russell 2000 down by -22.2%.

As usual, we have another busy week of economic reports this week.

And traders will also be digesting the latest inflation report, and, of course, Mr. Powell's comments on rates.

Should be another busy week for the markets. Maybe not as much drama. But busy nonetheless.

See you tomorrow,