Weekly Market Commentary August 21st to August 25th 2023

Despite an abundant number of economic releases, markets appeared to brace for Fed Chairman Powell’s speech at Jackson Hole; an event that rattled markets a year ago. Powell regurgitated many of his previous talking points, stating inflation remains elevated and the committee is prepared to raise rates again if inflation reignites in the back half of the year. The Fed believes that current policy is restrictive and will remain unchanged until inflation starts to move sustainably lower, meaning “higher (rates) for longer”.

New Home Sales rose to 714k, a 17-month high and marks a 32% increase from a year ago. Buyers are turning to new homes due to the historically low supply of existing homes for sale. This is particularly true in the Midwest and West regions where new homes sales surged 47% and 21%, respectively. Existing Home Sales fell 2.2% in July as affordability remains stretched. The combination of high home prices (median sales price of $406k) and a 30-year fixed mortgage rate over 7% have weighed on purchasers.

Manufacturing PMI dropped further into contractionary territory with a reading of 47. The survey’s commentary was even more worrisome, stating that manufacturing came to stall during the month of August and mirrors times of stagflation. Services PMI also came in lower than expected at 51.0 versus the 52.2 consensus estimate. Cost pressures regained momentum while firms were slightly more upbeat in their outlook for the coming year.

The S&P 500 rallied to 4,406, up +0.82% breaking its streak of 3 straight negative weeks. The Dow Jones Industrials slipped slightly to 34,347 while the Nasdaq rallied 2.2% to 13,591. In the fixed income markets, the 10-Year reached its cycle high of 4.35% earlier in the week but retreated to 4.23%. The 2-Year Treasury raced higher to 5.07%, signaling that the market may be anticipating more rate hikes.

Next week’s key economic releases include the Unemployment Report and Personal Consumption Expenditures, two key indicators for the Fed.