Week in Review: August 16, 2024

August 19, 2024

Recap & Commentary

Markets ended the week higher with the S&P 500 enjoying its best weekly return since November, leaving it just 2% shy of its record high set in mid-July.  A busy economic calendar was highlighted by consumer inflation and retail sales. In general, July inflation data came in as expected or slightly better, while retail sales significantly outperformed expectations. The combination of further improvements in inflation and signs that the consumer remains willing to spend provided further comfort to investors following the volatility experienced during the first three trading days of the month.

Markets remained unwavering in their expectation for a rate cut at the Fed’s September meeting. However, compared to a week ago when the odds were evenly split between a 0.25% and 0.50% cut, the better-than-expected retail sales data coupled with another decline in weekly jobless claims eased concerns about an imminent recession, shifting expectations back to a 0.25% cut.

This week, investors will be focused on the Fed’s annual Jackson Hole Symposium. Like most years, this year’s topic, “Reassessing the Effectiveness and Transmission of Monetary Policy” is unlikely to excite the average investor.  Fed Chair Jay Powell’s keynote address on Friday will be carefully scrutinized as investors look for further insight into the Fed’s though process regarding anticipated rate cuts. Most likely Powell will largely reiterate prior comments that the Fed wants to see more good inflation data before deciding to cut rates and that any/all monetary policy decisions will be “data dependent.”

Economic Commentary

Headline consumer inflation (CPI) rose 0.2% in July, in line with expectations. Compared to a year ago, prices rose 2.9%, marking the fourth consecutive month of improvement and slowest pace of growth since March 2021. Core inflation, excluding food and energy prices, rose 0.2% for the month and 3.2% from a year ago, the slowest pace of annual growth since April 2021. Assuming August continues to see similar trends, the Fed will likely have the necessary confidence it needs that inflation is moving sustainably back to the Fed’s longer-term 2% target to begin cutting rates at its September meeting.

Producer inflation at both the headline and core levels exhibited similar trends as the CPI data, with prices slowing on both a month-over-month and year-over-year basis, another positive sign that inflation is normalizing.

July retail sales jumped 1.0% from June’s 0.2% decline, suggesting that consumers remains willing to spend, helping alleviate concerns that they might be buckling under the sustained pressure of higher prices and interest rates.

The early read on July housing activity suggested the sector remained under pressure despite the recent decline in mortgage rates. Housing starts slid nearly 7% in the month, falling to a four-year low.

Weekly jobless claims fell 7K to 227K their lowest level since early July, helping offset concerns about a recent increase, coupled with July’s weak employment report, in which unemployment rose to 4.3%, its highest level since late 2021.

Of Note

Through Friday, 93% of S&P 500 companies had reported 2Q24 earnings. Thus far, 79% have beaten their earnings estimate. According to industry group FactSet, consolidated earnings growth for the quarter is expected to be 10.9%.

Market Indices   (As of 08/16/2024)

• Manufacturing & Services PMI
• New Home Sales
• Existing Home Sales
• Weekly Jobless Claims