Weekly Market Commentary July 29th to August 2nd 2024
In a week with 47 different economic releases, markets were ultimately focused on only two, the Federal Reserve’s rate decision on Wednesday, and the July employment report on Friday.
On Tuesday we got a prelude to the employment report with the Bureau of Labor Statistics releasing its Job Openings and Labor Turnover Survey (JOLTS) for June totaling 8.2 million, almost unchanged from the previous month, but down 941k from the previous year. Additionally, ADP reported its July private payroll report, which came in less than expected at 122k, the slowest pace since January, while the employment cost index, a closely watched indicator by Fed officials, increased by 0.9%, below estimates and the prior month’s 1.2% increase.
ISM Manufacturing PMI fell 170 bps from last month to 46.8%, contracting for a fourth consecutive month. This was attributable to continued soft demand resulting in companies having an unwillingness to invest in capital and inventories.
Wrapping up the week was the most anticipated economic data from the Bureau of Labor Statistics which surprised to the downside. Non-farm payrolls increased 114k in July, well-below the 175k estimate, while the prior two months were revised down by 29k. Average hourly earnings increased by 3.6% Y-o-Y, below the 3.7% estimate. Lastly, the unemployment rate increased to 4.3%, which is the highest level since November 2021, and attributable to the labor participation rate increasing with 470k new entrants. The weak report confirmed what appears to be a weakening employment environment along with last week’s PCE report showing continued inflation declines that resulted in a sharp decline in interest rates.
The S&P 500 opened the week at 5,459, and was up about 1.1% through Wednesday, but posted back-to-back declines after the weaker economic data, closing the week down at 5,346, -2.1% for the week.
In the U.S. Treasury market, rates were mostly unchanged until Wednesday’s FOMC meeting and declined even further on the heels of the employment report as markets priced in higher odds of additional rate cuts in 2024. The 2-Year U.S. Treasury declined by 55 bps to 3.88%, which is a 52-week low, while the 10-Year U.S. Treasury closed at 3.79% down 45 bps from the prior week and just off a 52-week low as well. The yield curve inversion decreased from -20 bps to -10 bps. The Fed Funds Futures curve is now pricing in a 50 bps cut in September and another 50 bps cut in December, well beyond what was signaled by the Fed.
Key consumer economic releases next week include the producer (PPI) and consumer (CPI) price indices, retails sales data for July and several housing statistics.
