CGS International
Date of Report: August 20, 2025
Jackson Hole 2025: Fed Uncertainty, AI-Led US Market, and Asia Pacific Strategy Outlook

Introduction: Dual Mandates, Market Tensions, and the Fed’s Next Move

The Federal Reserve stands at a critical juncture, balancing its dual mandates of price stability and full employment. As investors look to Jackson Hole for clues, the market has already priced in a 25 basis point rate cut for September. Yet, conditions differ sharply from last year, with employment and inflation data showing a more ambiguous outlook. CGS International’s Asia Pacific Strategy Flash Note dives deep into the nuances of Fed policy, labor market fragility, and the risks lurking beneath the surface of the AI-driven equity rally.

The Fed’s Balancing Act: Inflation vs. Employment

• This year, the Fed faces a more finely balanced scenario than in 2024, with both inflation and unemployment showing mixed signals.
• Last year’s unemployment rate had ticked up 70bp from cycle lows—a classic precursor to further job market weakness. At the same time, inflation expectations and real rates were falling, justifying a pre-emptive rate cut.
• Today’s starting point is 100bp lower, but market-based inflation measures remain high. Financial conditions are loose, with tight credit spreads and robust equity prices.
• Unemployment has been steady over the past 12 months. The Fed’s challenge has shifted: inflation uncertainties now dominate.

Labor Market: Beneath the Headlines, Signs of Stress

• Headline job numbers look solid, but leading indicators (job openings, temp hires, ISM employment) suggest underlying fragility.
• There is a risk of mistaking lagging indicators like the unemployment rate for true labor market health.
• Job cut announcements and downward revisions are rising, echoing patterns seen in 2008, but do not alone justify a rate cut.

Market Pricing: Anticipating a 25bp Rate Cut

• Markets have priced in an 85% probability of a 25bp rate cut at the September FOMC meeting.
• Any hawkish surprise from the Fed could disappoint investors.
• Profitless tech stocks have surged 65% year-to-date, supported by abundant liquidity.
• Market breadth is narrow, concentrated in the AI narrative, while risk compensation for the S&P500 is poor.
• The US market is more expensive than in 95% of historical observations.

Rate Cuts: Not Always a Signal of Strength

• Rate cuts are typically reactive, not pre-emptive, and signal underlying economic stress rather than healthy macro conditions.
• Soft landings are rare. Historical parallels to early-2000s tech crash are evident, with the Fed cutting rates as unemployment continued to rise and earnings fell.
• For equities, rate cuts often mark the start of an earnings recession rather than an “all clear” signal.

Asia Pacific Strategy: Regional Insights and Broker Coverage

CGS International’s Asia Pacific coverage spans Hong Kong, Indonesia, Malaysia, Singapore, South Korea, and Thailand. Each jurisdiction operates under local regulatory supervision, and the detailed disclaimers and distribution restrictions are outlined for compliance. The report emphasizes the importance of understanding local regulatory environments and tailoring strategies accordingly.

Stock Ratings and Recommendation Framework

CGS International uses a clear, actionable ratings framework for covered stocks and sectors:

Sector and Country Ratings

• Overweight: Above-market weight relative to benchmark
• Neutral: Market weight relative to benchmark
• Underweight: Below-market weight relative to benchmark

Distribution of Ratings: Coverage and Investment Banking Clients

For the quarter ended June 30, 2025, CGS International covered 561 companies. The distribution of ratings and proportion of investment banking clients is as follows:

Corporate Governance Score: Thailand Listed Companies

• IOD survey scores for Thai listed companies range from “Excellent” (90-100) to “Good” (70-79).
• CGS International does not confirm or certify the accuracy of these third-party survey results.

Global Distribution and Regulatory Notes

CGS International provides extensive regulatory disclosures for distribution in Australia, Canada, China, France, Germany, Hong Kong, Indonesia, Ireland, Malaysia, New Zealand, Singapore, South Korea, Spain, Sweden, Switzerland, Thailand, UAE, UK, EEA, and the United States. Coverage is restricted to professional and institutional investors and subject to local laws and regulations.

Conclusion: Navigating Uncertainty in the AI-Driven Market

As the Federal Reserve weighs its next move, investors face a market driven by liquidity and concentrated AI-related themes. Beneath robust equity performance, labor market stress and elevated valuations pose risks. CGS International’s Asia Pacific Strategy outlines a disciplined approach to stock selection, sector allocation, and regional positioning for investors navigating an environment where central bank actions are more reactive than visionary.
Key Takeaways for Investors:

• Do not rely on lagging indicators; monitor leading labor market signs for stress.
• Be wary of chasing narrow, speculative rallies—especially in profitless tech and AI stocks.
• Rate cuts are often signals of underlying problems, not opportunities for risk-on exposure.
• Follow a disciplined rating and allocation framework across sectors and countries.