Market Momentum: Your Weekly Financial Forecast

Weekly Wrap-Up

During the week of August 5 through August 9, 2024, the U.S. financial markets were characterized by notable volatility as the VIX tagged 65+ in a scramble for protection and a mixed performance across various sectors. /NQ was down over 5% in pre-market/globex before the Monday cash open. Key drivers of market activity included corporate earnings, economic data releases, and geopolitical developments. Despite early weakness, most corners of the market managed to catch-up by Friday close:

Corporate Earnings: The week saw significant earnings reports from major companies across multiple sectors, providing insight into the health and resilience of different industries. One of the most closely watched companies was Disney, which reported mixed results. Disney's streaming segment showed strong subscriber growth, but its media and entertainment division faced challenges, particularly in traditional cable and broadcasting. The company's earnings were impacted by ongoing disruptions in the entertainment industry, including the Hollywood writers' strike, which had a ripple effect on content production and advertising revenue.

Another major earnings report came from Uber, which showed robust growth in its ride-hailing and food delivery segments. However, the company's profitability remained a concern, with rising costs in driver incentives and marketing efforts weighing on its bottom line. Uber's stock reacted positively to the revenue growth, but the market remained cautious about its path to sustained profitability.

Sector-Specific News: The technology sector continued to be a focal point for investors, particularly in the semiconductor space. Nvidia, a leader in the semiconductor industry, reiterated strong demand for its AI chips, driven by the rapid adoption of artificial intelligence across various industries. This demand has positioned Nvidia as a key player in the tech sector's future growth. However, concerns about potential regulatory scrutiny and supply chain disruptions tempered some of the optimism surrounding the stock.

In contrast, the energy sector faced headwinds as oil prices declined during the week. The decline was driven by concerns about slowing global economic growth and its potential impact on energy demand. Energy companies, including ExxonMobil and Chevron, saw their stock prices under pressure as a result.

Geopolitical Headlines: Geopolitical developments also played a significant role in market movements during the week. Tensions in the Middle East escalated, leading to a brief spike in oil prices before they retreated. Additionally, a report from Hindenburg Research alleged that the chief of India's market regulator held investments in offshore funds linked to the Adani Group, raising concerns about potential conflicts of interest and regulatory oversight. This news sent shockwaves through Indian markets and had a ripple effect on global investor sentiment.

There were also rumblings about the Yen carry trade unwinding, causing markets to open on a large gap-down across the board and inviting extreme weakness at the start of the week, causing VIX to soar to levels not seen since 2020.

The Yen carry trade unwind refers to the reversal of a popular investment strategy where investors borrow Japanese yen at low-interest rates to invest in higher-yielding assets abroad. When global risk increases or the yen strengthens, these investors often unwind their positions by selling foreign assets and repurchasing yen, leading to yen appreciation. This can cause significant volatility in global markets, particularly in currencies and assets that were beneficiaries of the carry trade. The unwind is typically triggered by changes in interest rates or shifts in market sentiment.

Market Performance: The S&P 500 and Dow Jones Industrial Average both experienced fluctuations throughout the week, ultimately closing slightly lower. The Nasdaq Composite, which is heavily weighted towards technology stocks, managed to eke out a small gain, driven by strength in the semiconductor sector.

Investors remained cautious as they weighed the implications of the mixed earnings reports, economic data, and geopolitical risks. The market's direction in the coming weeks was expected to be influenced by the Federal Reserve's actions, as well as any further developments in the global economy and geopolitical landscape.

Conclusion: In summary, the week of August 5 through August 9, 2024, was marked by a confluence of factors that contributed to a volatile and uncertain market environment. Corporate earnings provided a snapshot of the challenges and opportunities facing different sectors, while economic data and Fed policy added to the market's uncertainty. Geopolitical developments further complicated the market outlook, leaving investors with a cautious and watchful stance as they navigated the complexities of the global financial landscape.

This stack is certainly our most complete to date. There’s a lot to digest and none of it is filler. CPI, other important econ data and late cycle earnings in some notable names are on-deck, you can find them at the end of this stack. We’ve also included our semi-annual assessment of various investing thematics, certainly worth a moment for reflection as we’re now solidly into the back half of the year. Lastly, in the thematics section, there’s a small primer on yields; if you’ve had your head in the sand on understanding why they matter so much right now, this gentle intro might be just what you’re looking for. All the other usual suspects you’ve come to love from the weekly Market Momentum report are in here as well. Enjoy!

This Week’s Snapshots

Volatility

ETFs

Crypto