Tucker Financial Weekly Market Review: August 2nd, 2024

Weekly Market Report: August 2nd, 2024

Market Anecdotes

• Equity markets traded in a risk-off tone toward the end of the week where bad news seemed to be received as ‘bad news’, increasing odds for more of a dovish Fed. Lower rate expectations seem to have fueled a historic July stretch of small caps outperforming large caps.
• Both slowing labor market and slowing consumer spending have fanned investor anxiety about the growth outlook and whether policy will react firmly enough to interrupt softening momentum.
• Despite a clear dovish pivot by notable economists, Bloomberg’s financial conditions index in the U.S. and Eurozone are indicating very easy conditions just as the Fed and ECB begin to embark on a rate cut campaign.
• Hulbert Ratings noted equity market returns following an initial FOMC rate cut are somewhat of a mixed bag with outcomes ultimately dependent on what market participants believe is the forward path for the economy: a soft landing or a weak economy in need of accommodation.
• Other foreign central banks saw the BoJ follow the March rate hike, its first in 17 years, with a surprise increase, moving the range from 0%-0.1% to 0.15%-0.25% and a reduction in their QT program. The BoE delivered an expected 25 bps rate cut to 5%.
• Second quarter earnings reports, now 75% complete, are sitting at a respectable 11.5% blended bottom line but a disappointing revenue beat rate and margin of 59% and 1.1% respectively.
• U.S. bond yields moved sharply lower on the risk aversion and growth concerns surfacing toward the end of the week while yield curves have been trying to un-invert.
• Healthy personal consumption data in the second quarter following a pullback in Q1, while encouraging, may be difficult to sustain given labor market conditions and overall consumer confidence and sentiment indications.
• Alpine Macro has made the case that the Sahm Rule may provide a false recession signal given the gap between labor demand and supply has been filled with surging supply as opposed to, historically, falling demand.

Economic Release Highlights

• July payrolls came in below the consensus estimate (114,000 vs 180,000) and the unemployment rate increased to 4.3% from 4.1% in June. Labor participation rate increased to 62.7% and average hourly earnings slowed to 0.2% MoM and 3.6% YoY.
• Second quarter Employment Cost Index grew QoQ (0.9% vs 1.0%) and YoY 4.1%, slightly less than first quarter growth of 4.2%
• June JOLT Survey showed 8.184M job openings, slightly higher than consensus estimate of 8.0M.
• The July U.S. ISM Manufacturing Index came in below expectations (46.8 vs 48.8), declining from June’s 48.5 reading and coming in well below the forecast range of 48.0-50.1.
• The July JPM Global Manufacturing PMI cooled to 49.7 from 50.9 in June. China’s Manufacturing PMI came in below expectations (49.8 vs 51.5), down from June’s 51.8 and India recorded 58.1.
• The Consumer Confidence Index in July increased from a 97.8 reading in June to 100.3, above the consensus estimate of 99.5 and the forecast range of 97.5 to 100.0.
• Eurozone Q2 GDP grew at a 0.3% QoQ and 0.6% YoY clip, with the former in line and the latter slightly above consensus.
• The May Case-Shiller Home Price Index rose 0.3% versus expectations for 0.5% with a YoY gain in line with expectations at 6.8%.