Tucker Financial Weekly Market Review: August 23rd, 2024

Weekly Market Report: August 23rd, 2024

Last week, markets absorbed a relatively light economic calendar, the Jackson Hole Symposium, and a handful of remaining 2Q earnings reports. While the S&P 500 and NASDAQ snapped their 8-day winning streak last week, they still managed to post a nice weekly gain of approximately 1.4%. Small caps (+3.5%) and developed international (+3.1) both posted strong gains while emerging markets gained 1%. Bonds rallied as interest rates fell across the curve. The biggest move was in 2yr yields, down 16 bps to 3.90%. Longer maturities declined as well with the 10yr closing 8 bps lower to yield 3.81%. The USD fell 1.7%, continuing its descent since late June while commodity markets were mixed with energy price declines offset by strength in industrial metals.

Market Anecdotes

• The soft landing narrative has been dominant with the S&P 500 back to pre-July jobs report levels, and the Nikkei back to where it was prior to the Yen carry trade unwind. Cool inflation numbers, strong retail sales, and some light unemployment claims have aided momentum.
• The July FOMC meeting minutes released last week were dovish as expected and contained no material surprises. Several participants mentioned reported payroll gains might be overstated, which was indeed the case with an 818k downward revision announced on Wednesday.
• Powell’s remarks before the Jackson Hole Symposium indicated what markets were expecting, which is that “The time has come for policy to adjust” and that “the timing and pace will depend on incoming data, the evolving outlook, and the balance of risks.”
• Fed funds futures are pricing in a 25 bps cut in September with a 24% chance of 50 bps to begin the cutting cycle. Beyond that, markets see 1.25% of easing through the four meetings ending January and a total of eight cuts over the next 12 meetings.
• A ClearBridge study examined the drivers behind the rise in unemployment from 3.7% to 4.3%, concluding the higher percentage of “new entrants and re-entrants”’ instead of “job losers and leavers” supports the idea that the job market may be stronger than the data suggests.
• Overall financial conditions in the U.S. have become very supportive as measured by the Goldman Sachs FCI. However, the pace of labor market deceleration has the potential to trigger a feedback loop which may cause overall financial conditions to begin to tighten.
• The USD marked a new 2024 low last week, fueled in part by decelerating labor market concerns. USD is down 5% from its 2024 high back in April, 3% of which happened in August.
• As the November elections draw closer, we will begin to analyze fiscal policy (and executive actions?) as it relates to aggregate demand and financial markets as well as the longer-term implications of U.S. government deficit spending.

Economic Release Highlights

• The August Flash U.S. PMI saw the Services Index beat (55.2 vs 54.0) and the Manufacturing Index miss (48.0 vs 49.5) translating to a healthy Composite Index (54.1 vs 53.3).
• The August Flash Eurozone PMI (C,M,S) registered (51.2, 45.6, 53.3) where the manufacturing index missed and services index exceeded expectations. The UK registered (53.4, 52.5, 53.3), beating forecasts for both manufacturing and services readings.
• Existing Home Sales in July of 3.95M came in slightly above spot consensus of 3.90M, increasing 1.3% MoM and down 2.5% YoY. New Home Sales in July of 739K were well above the spot forecast of 628k and the consensus forecast range of 605k-648k.
• The Conference Board LEI Index registered -0.6% in July, extending its lengthy deteriorating trend.