Week in Review: August 30, 2024

September 3, 2024

Recap & Commentary

Markets ended the week relatively unchanged as investors seemed content to bide their time following Fed Chair Jay Powell’s pronouncement the prior week, offering the clearest indication yet that the Fed intends to begin cutting interest rates at its upcoming September meeting.

Revised second quarter GDP data and the release of the Fed’s preferred inflation measure, core personal consumption expenditures (PCE), suggested that a soft landing remains possible, if not probable, as economic activity entered the third quarter with good momentum, while inflation continues to moderate back towards the Fed’s longer-term target of 2%.

Outside of economic data, perhaps the week’s most anticipated data point was AI chip maker Nvidia’s second quarter earnings. Despite beating on both the top and bottom lines (revenue and earnings), the stock sold off as investors were apparently unsatisfied with the size of the beat. Nonetheless, the company’s results showed that demand for AI chips continues unabated.

This week, all eyes will be on the August employment report. For much of the past two and a half years, the Fed has been focused almost exclusively on the price stability portion of its dual mandate. More recently the Fed appears to be placing greater emphasis on the other part of its mandate, maximum employment. A strong August jobs report would likely cement a 0.25% rate cut at the Fed’s September meeting, while a weaker-than-expected report would spur additional talk of a 0.50% rate cut to support labor markets.

Economic Commentary

A busy economic calendar was highlighted by the release of the Fed’s preferred inflation measure, core personal consumption expenditures (PCE). On a monthly basis, core PCE rose 0.2% in July, consistent with expectations.  Compared to a year ago, core PCE rose 2.6%, slower than economists’ 2.7% forecast.  The data corroborated CPI inflation data released earlier in the month showing continued moderation in inflation.

Second quarter GDP was revised upwards from 2.8% to 3.0%, due primarily to  upward revisions to consumer spending along with smaller upward revisions to business spending. The revised data suggested the economy entered the third quarter with good momentum and that a recession does not appear imminent.

Consumer sentiment rose slightly in August, led by an improvement in consumers’ future expectations. Inflation expectations remained stable and largely unchanged with one-year expectations declining from 2.9% to 2.8%, while five-year expectations remained unchanged at 3.0%.

Pending home sales in July sank to their lowest level on record dating back to 2001. Though a recent decline in mortgage rates is expected to spur housing market activity, the pending home sales data showed it will take time.

Headline durable goods orders jumped ~10% in July led by aircraft orders which tend to be volatile. A more nuanced reading of underlying business spending slipped 0.1% after gaining 0.5% in June signaling muted demand.

Of Note

NFL owners approved a resolution allowing private equity funds to purchase up to 10% of a franchise. The ownership stakes would be passive, preventing the funds from having any real authority over teams.  The resolution passed 31-1.

Market Indices   (As of 08/30/2024)

• August Employment Report
• ISM Manufacturing
• ISM Services
• JOLTs
• Weekly Jobless Claims