Market Momentum: Your Weekly Financial Forecast

Weekly Wrap-Up

During the week of August 19 through August 23, 2024, U.S. financial markets experienced some volatility influenced by mixed economic data, earnings reports, and global events. The S&P 500 and Nasdaq both saw fluctuations as indices largely chopped in range-bound activity as investors processed news about interest rates and economic performance.

Economic Data: Powell signaled that the Fed is preparing to cut interest rates, a significant shift from its previous stance focused on curbing inflation.

He noted that inflation is easing, but also expressed concerns about a weakening job market, which has led to the decision to consider lowering rates. Powell emphasized that the central bank's future actions would be guided by economic data and cautioned against any premature rate cuts, warning that inflation could persist above the Fed's 2% target.

The speech marked a policy pivot, as Powell acknowledged that the risks have shifted from inflationary pressures to the potential for a slowing labor market. He also reflected on the Fed's earlier misjudgments regarding the transitory nature of pandemic-era inflation. Despite this, Powell maintained a hopeful tone, expressing confidence that the economy could return to 2% inflation without triggering widespread layoffs.

The U.S. economy experienced a significant downward revision in job growth figures for the 12-month period through March 2024, as reported by the Bureau of Labor Statistics (BLS). The revision showed that the economy created 818,000 fewer jobs than initially estimated, reducing the reported job growth by nearly 30%. This adjustment suggests that the labor market was not as robust as previously thought, with substantial downward revisions in sectors such as professional and business services, leisure and hospitality, manufacturing, and trade. Despite this, job creation still exceeded 2 million during the period, and sectors like private education, health services, and transportation saw upward revisions.

The revision has implications for Federal Reserve policy, as it could provide further justification for the Fed to consider lowering interest rates. The weaker-than-expected job growth aligns with recent signs of a softening labor market, including a rise in the unemployment rate to 4.3%. This increase in the unemployment rate triggered the Sahm Rule, a historically accurate recession indicator. However, the rise in unemployment has been partly attributed to more people returning to the workforce rather than a significant increase in layoffs.

Economists and analysts are divided on the significance of these revisions. While some, like Jeffrey Roach of LPL Financial, believe the weaker labor market supports the case for rate cuts, others, including Goldman Sachs economists, argue that the revisions may have been overstated. The debate continues as Federal Reserve officials, including Chair Jerome Powell, closely monitor the evolving job market ahead of the Fed’s September meeting, where the first interest rate cut in four years is expected to be approved.

Corporate Earnings: In terms of corporate earnings, the retail sector was in the spotlight. Reports from major retailers such as Home Depot and Lowe's provided insights into consumer behavior and the housing market. Home Depot reported better-than-expected earnings, driven by strong demand for home improvement products. However, Lowe's earnings were more mixed, reflecting challenges in maintaining growth amid a cooling housing market. Nvidia is in the spotlight later this week.

In broad strokes auto makers, homebuilders, retailers, entertainment and biotech companies caught bids on the back of Fed Chair Powell’s comments. Semi and large banks did well, too. SPX is up a staggering 10% off this month’s lows when the yen carry trade caused a massive unwinding of positions in the markets and SPY - along with many other tickers - saw their highest volume day of 2024.

This Week’s Snapshots

Volatility

ETFs

Crypto

Forex

US Investor Sentiment

%Bull-Bear Spread

US Investor Sentiment, % Bull-Bear Spread is at 27.96%, compared to 13.65% last week and 5.75% last year. This is higher than the long-term average of 6.68%.

1-Year View