Weekly Market Report: August 30th, 2024
Last week put the dog days of summer in the rearview with markets focused on some key economic and corporate earnings reports. A tidy rally toward the end of the day Friday pushed the S&P 500 into positive territory for the week, wrapping up a nice 2.3% return for the month of August which certainly did not start on a positive note with economic anxiety and Yen carry trade unwind dominating the first week. The yield curve continued to steepen with short rates flat to down and longer-term yields up, leaving the 2yr (3.91%) and the 10yr (3.91%) with nearly identical yields after two years of inversion. The USD jumped nearly 1% last week, bringing it back into positive territory for the year (+0.36%) while commodities were pretty mixed across the board leaving oil at $73.55 to close out the month.
Market Anecdotes
- The hiking cycle of 2.5 years and 500 bps is set to end September 17-18 with limited data points between now and then, where markets firmly expect a Fed rate cutting cycle to begin, begging the question, which equity asset classes have historically benefitted the most?
- Second quarter S&P 500 earnings were up nearly 12% YoY with 74% of firms topping estimates, including Nvidia, last week, handily beating forecasted earnings ($0.68 vs $0.65) and revenue ($30b vs $28.9b).
- Alpine Macro published an interesting piece on AI concluding that a valuation premium exists due to market expectations of higher revenue, a boost to EBITDA, enhanced productivity, and higher GDP growth but it is not currently meeting the definition of bubble or mania.
- Expectations for a soft landing path for the U.S. economy to transpire has increased notably since April as data indications have maintained a positive tone and model projections, including the Atlanta Fed GDPNow model have remained consistently above 2%.
- Along with the positive 2Q GDP revision last week, we received data on corporate profits which grew 1.7% pre-tax with after-tax aggregate profit margins edging higher from 15.2% to 15.4%.
- Housing market data last week reinforced the tepid outlook for the time being with inventory, rates, and prices posing tangible headwinds to prospects of any near-term recovery.
- A Penn Wharton Budget model estimates that, despite spiraling national debt and massive budget deficits, both team R and team D are forecasted to deliver the status quo.
- According to Bloomberg’s data set, as recently as 2017 passive mutual funds and ETFs accounted for 35% of assets. That grew to 50.1% in December 2023 and has continued its march higher with the July 2024 tally at 51.3%.
Economic Release Highlights
- August YoY PCE inflation was in line with expectations for both headline (2.5%) and core (2.6%) alongside MoM readings of 0.2% for both headline and core PCE. Personal income grew slightly more than forecast (0.3% vs 0.2%) and PCE was in line with spot consensus at 0.5%.
- 2Q U.S. GDP was revised higher in the second estimate from 2.8% to 3.0% thanks in large part to stronger personal consumption which was revised up from 2.3% to 2.9%.
- Consumer Confidence in August improved to 103.3 from July’s 101.9 reading, ahead of both the spot consensus 100.1 and forecast range of 99.5 to 103.0.,
- Case-Shiller Home Price Index for June rose 0.4%, more than the consensus forecast of 0.2%.
- Pending Home Sales in July fell 5.5%, well more than the forecasted 1.1% increase projected.
- Durable Goods Orders report for July jumped 9.9%, well in excess of the 4.5% spot consensus and above the high end of the forecast range of -0.3% to 9.0%.
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