Weekly Market Report: August 9th, 2024
Global equity and bond markets endured another volatile week despite a notable lack of catalysts. U.S. equity markets spent most of the week clawing back from Monday’s selloff thanks to a reappearance of the soft- landing narrative, an uptick in corporate buyback activity, and bounce momentum leading to lower systematic selling estimates. Last week saw a relatively light economic calendar and a continuation of second quarter earnings reports. U.S. equity markets were down and up during the week but ended flat (-0.04%) while international developed (+0.49%) and emerging (+1.11%) both managed marginal gains. Bond yields continued to reclaim lost ground of the past two weeks in what was a relatively parallel shift higher approximately 12 to 18 bps. The USD was unchanged against a basket of currencies, including the Yen, and commodity markets traded higher thanks in large part to a 4.5% rally in WTI crude oil which closed up 4.5% to $76.84.
Market Anecdotes
- Examining market internals and trending economic data over the past two weeks in an effort to conceptualize the sudden surge in volatility leaves our short term (neutral) and intermediate term (cautious) views largely unchanged.
- Apollo noted the low level of job cuts to reinforce the idea that the Sahm Rule does not apply to the current labor market due to the significant increase in immigration.
- A close look at the behavior of high yield credit spreads made clear there was not a material spike in perceived credit risk to go along with the material spike in equity market volatility.
- Several strategists have highlighted market leadership rotation evident since the soft July 11th CPI report, seemingly a marker for reestablishing the disinflation narrative and an associated dovish monetary policy pivot acknowledging labor market deterioration.
- Now in the later stages of the earnings season (91% of S&P 500 reported), second quarter blended earnings have grown 10.8% with beat rates of 78% and beat margins of 3.5%. Revenue grew by 5.2% with below average beat rates (59%) and beat margins (0.5%).
- Bloomberg’s Taro Kimura noted recent speculative Yen short positioning is as ‘offside’ as we’ve seen since the Yen carry trade implosion we saw back in 2007.
- The 2/10 curve which has been inverted since July 2022 ‘uninverted’ briefly last week which, in the past four recessions, has happened on average two to six months past the beginning of the recession.
- Trepp CMBS Research noted 30-day CMBS delinquencies ticked higher in July to 5.45%, up from 4.41% last year, with over 65% of newly delinquent loans coming from the office sector which is now over 8%, up sharply from 4.96% last year.
- The global geopolitical landscape remains in flux with a potentially large conflict looming in the middle east between Israel and Iran.
Economic Release Highlights
- The July ISM Services Index (51.4 vs 51.0) was generally in line and improved over June’s 48.8.
- The JPM Global Composite PMI registered a composite reading of 52.5 and services of 53.3.
- Weekly jobless claims came in below expectations (233k vs 240k) and the 4-week moving average claims increased to 240k.
