Weekly Market Commentary August 26th to August 30th 2024
After receiving signals from the Fed post-Jackson Hole Conference that they are actively discussing rate cuts and are likely to begin in September, all eyes are now focusing on the pace. Will they go quickly and aggressively like when they raised rates a couple years ago? Or will the process be measured and drawn out as history generally suggests? Chair Powell has indicated that the Fed will continue to be data-dependent and that their decisions will incorporate their “evolving outlook and balance of risks.” Regarding the data, we didn’t have to wait long for the first big release since the conference as the Personal Consumption Expenditure (or PCE) results for July came in as expected on Friday morning. The month-over-month PCE Price Index came in at 0.2%, slightly higher than June’s; and the year-over-year rate came in line with the prior month at 2.5%. Stripping out food and energy, the Core PCE Price Index came in at 2.6%, slightly lower than expectations but still matching June’s. Personal Income and Spending for July both came in higher than prior so the Fed will likely accept all these results as positives and continue its analysis towards a September rate cut. Whether they go 25 or 50 bps will likely be determined over the next few weeks.
Also released last week (and a strong win for the economy) was the second cut of 2Q-GDP (Gross Domestic Product). Consensus called for the 2.8% figure to be unchanged, but due to continued strong consumption adjustments, it came in at 3.0%. This will be more evidence for the Fed that the economy continues to head for the desired soft landing.
On the employment side, the weekly Initial Jobless Claims continues to hover in the low to mid-200k’s. This number has been trending slowly upward since the beginning of the year and is a great indicator that, while still strong, the economy is slowing. Durable Goods Orders for July took a wild positive spin after a rough print last month. It bounced back from June’s -6.9% to 9.9%, beating the consensus by 5%. When transportation orders were stripped out, things looked more rational. This was due to a bounce back in aircraft orders which had plummeted in June. Lastly, in the volatile real estate sector, Pending Home Sales dropped 5.5% when a 0.7% increase was expected.
A late day rally on Friday couldn’t push all the equity markets into the black and they finished mixed on the week. The S&P500 finished up 0.2% at 5,648; the Dow Jones Industrials closed up 0.9% at 41,563 and the mega cap tech-heavy Nasdaq Composite lost 0.9% to 17,714 due to mixed results for tech giant Nvidia’s 2Q earnings. Their numbers were strong, but not strong enough to sustain their recent torrid pace. The yield on the 10-Year U.S. Treasury closed the week at 3.91%, up by 9 basis points.
Key economic reports next week include the August employment report and the ISM Services and Manufacturing Indices.
