Week in Review: August 9, 2024

August 12, 2024

Recap & Commentary

Markets ended a volatile week largely unchanged as they partially recovered from selling pressure that began the prior Thursday and culminated with the S&P 500 dropping 3.0% on Monday, its largest one-day decline since 2022. Though the week’s economic calendar was relatively light, the few data points which were released helped assuage some of the prior week’s concerns that the US economy might be headed for a recession, rather than a soft-landing.

In response to the renewed concerns about a potential recession, interest rates as measured by the 10-Year Treasury yield briefly fell below 3.7%, their lowest level in 14 months. That in turn helped drive the average 30-Year mortgage rate to just under 6.5%, its lowest level since last May. While still more than double the level at which they stood before the Fed began raising rates in 2022, the recent pullback in mortgage rates could help rejuvenate housing sector activity which has been particularly moribund of late. At current levels, the monthly principal and interest payments on a 30-year fixed mortgage for $500K is now ~$440 less, per month, than when mortgage rates peaked at 7.8% last October.

Through Friday, 91% of S&P 500 companies had reported 2Q24 earnings. Thus far, 78% have beaten their consensus estimate. According to industry group FactSet, consolidated earnings growth for the quarter is expected to be 10.8%.

Economic Commentary

A relatively light week for economic data was headlined by the ISM services index whose reading helped to offset the prior week’s disappointing ISM manufacturing index. Unlike the manufacturing reading which showed a further contraction in July, the services sector returned to growth in July after falling into contraction territory the prior month. Strength was broad based with a notable improvement in employment which jumped five points, returning to positive territory for just the second time in 2024 while reaching its highest level since last September.

Weekly jobless gains fell 17K to 233K relieving some of the concerns from the prior week after jobless gains reached their highest level in a year. While the weekly data tends to be volatile, the decline, coupled with the uptick in the ISM services data, helped calm some of the concerns that arose the prior week.

This upcoming week’s busy economic calendar will be important, providing further insights into prices as well as the strength and mindset of consumers. The best-case scenario would be upbeat retail sales helping alleviate concerns about the consumer, coupled with further slowing in inflation data suggesting the Fed has room to begin cutting rates at its next meeting in September.

Of Note

One of the causes of the recent market selloff was the unwinding of the “yen carry trade.” A carry trade is when an investor borrows in one currency at low interest rates and invests the money in another currency or assets with higher returns. The strategy works if interest rates, and exchange rates remain relatively stable.  The yen carry trade ran into trouble last week when the Bank of Japan raised rates and simultaneously the US Fed indicated it was likely to begin cutting rates in September. That led to carry trade investors attempting to “unwind” their trades at the same, putting pressure on global assets.

Market Indices   (As of 08/09/2024)

• Consumer Inflation (CPI)
• Producer Inflation (PPI)
• Retail Sales
• Housing Starts
• Consumer Sentiment
• Industrial Production
• Weekly Jobless Claims