Market Update: August 19, 2024
Economic data for the week included both producer and consumer price indexes coming in lower, showing continued deceleration toward more normal levels. Retail sales and consumer sentiment improved, while industrial production and housing starts declined, with the latter likely driven by weather-related events.
Equities gained ground globally, following a week of high volatility, with both the U.S. and foreign markets seeing similar gains. Bonds also fared well as yields fell in response to decelerating inflation. Commodities were mixed with metals up and energy down, despite higher Middle East tensions.
U.S. stocks reversed course from the prior week’s volatility, earning the best weekly returns in a year. By sector, growth leadership resumed with technology gaining nearly 8% (led by a 20% rise in NVIDIA), followed by consumer discretionary up over 5% (with Starbucks gaining sharply after appointing a new CEO from Chipotle). Laggards included communications, as well as energy and utilities, all of which were up only about a percent. Real estate was only slightly positive. Interestingly, declines in Alphabet/Google have been somewhat muted considering the U.S. Justice Department’s interest in potentially breaking up the firm due to what are claimed to be monopolistic practices.
Stocks started the week strongly on Tue., with a lower-than-expected PPI report, while the CPI data Wed. was decent, but not earth-shattering. As the narrative of a continued pace of inflation deceleration was kept intact (sustaining the high chances of an FOMC rate cut in Sept.), it perhaps created a ‘buy the rumor, sell the news’ moment, as stocks pulled back a bit. The Thu. jobless claims and retail sales data (and positive revenue/earnings report for Walmart) seemed to alleviate some concerns over the health of the consumer, especially with that particular stock seen somewhat as a bogey of spending conditions for lower income Americans.
Foreign stocks performed roughly in line with U.S. stocks for the week, with rising hopes for rate cuts by the ECB and Bank of England. Q2 GDP for Europe and the U.K. rose at rates of 0.6% and 0.3%, respectively, continuing a stretch of weaker growth. Japan outperformed Europe, in a recovery from volatility the prior week; despite a weaker yen, economic growth came in stronger than expected for Q2, at an annualized 3.1% pace, reversing a contraction in Q1. This is in addition to likely relief over the central bank’s realization that policy tightening might require a softer touch to not disrupt the yen ‘carry trade’ that has been in effect in some form for decades. In emerging markets, most countries saw positive returns, led by South Korea and Taiwan, which have been closely connected to U.S. technology sentiment.
Bonds also fared well last week, as yields ticked down along the longer part of the U.S. Treasury yield curve. These appeared to be in response to the improved PPI and CPI inflation data, which raises the chances of a Federal Reserve rate cut in September. Both investment-grade and high yield bonds outperformed, as spreads also tightened again, although floating rate bank loans also earned positive returns. Foreign bonds fared positively, as the U.S. dollar declined about a half-percent on the week.
Commodities were mixed for the week, with gains of 2-3% in industrial and precious metals offset by declines in energy and agriculture. After rising on Monday morning for a bit, along with a continued ramp-up in hostilities between Israel and Iran, crude oil prices ended the week down a bit at $75.50/barrel.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.