Market Update: September 9, 2024
On the Labor Day-shortened week, economic data included ISM manufacturing and services gaining some ground, a continued reduction in job openings, and an employment situation report coming in largely as expected (and an improvement on the prior month’s disappointment).
Equities lost ground globally for the week with concerns over the broader economy and labor markets in the U.S. Though, bonds fared well as yields fell sharply. Commodities fell back led by weaker oil prices due to future demand worries.
U.S. stocks suffered the worst weekly declines in over a year and a half, but representing the third meaningful drawdown this year. By sector, only consumer staples saw a small gain, while all others ended in the negative, led by technology (-7%), energy (-6%), and materials. The sizable technology drop was fueled by NVIDIA down -14%, following rumors about it being subject to a Justice Department antitrust probe, resulting in the largest dollar market cap loss on record. (Moderate changes in trillion-dollar market cap sizes have tended to be record setting.) Real estate also gained slightly, along with lower yields.
Much of the week appeared to be spent worrying over the Friday employment situation report for August, which ended up being a bit weaker than expected along with downward revisions, and causing some concern over the underlying health of the U.S. economy. Interestingly, along with comments from Fed members, it seemed enough to perhaps put aside hopes for a -0.50% Fed rate cut this month, in favor of a more moderate -0.25%. September has given investors the jitters as well, per the seasonal patterns noted earlier.
Foreign stocks behaved in similar fashion to U.S. equities, with the U.K. faring slightly better, and Japan slightly worse than Europe. Minimal news moved the needle, with expectations tied to ECB rate cuts in Sept. like the U.S. Fed. Interestingly, most key emerging markets fared better than developed, but the index was pulled down by especially weak returns in Taiwan and South Korea, on the order of -7% or so, with a higher correlation with the U.S. technology group.
Bonds fared well, as economic worries translated to a ‘risk-off’ environment and lower yields. U.S. Treasuries led, with gains of over a percent, followed by investment-grade corporates, while floating rate bank loans lagged with minor declines. Foreign bonds generally fared well, along with a weaker U.S. dollar for the week.
Especially interesting in fixed income was that the U.S. Treasury yield curve ‘uninverted’—at least as measured by the 10-year/2-year slope. The comparison of those two points on the curve tends to rank behind the more popular 10-year/3-month slope, but is still closely-watched. The good and bad news is that, while initial inversions have been a reliable indicator of an upcoming recession in the admittedly wide range of the next 6 mo. to 2 yrs., the reversal back to a positive slope has historically tended to occur as a recession is starting. While growth looks currently strong enough to not be in recession based on a variety of indicators, the path remains to be determined. Unsurprisingly, the 2-year/3-month slope is still extremely inverted on a historical basis (near -1.5%), pointing to an expected path of sharp rate cuts in the coming two years.
Commodities fell back broadly during the week, led by energy and industrial metals. Crude oil fell by -8% last week to $68/barrel. Despite OPEC+ plans to postpone increased production, which could normally create supply worries, these were outweighed by more intense worries over slowing economic demand in the U.S. and China over the next year. Oil prices have bounced around in a relatively wide but contained trading range of $65-95 over the past two years, with current pricing near the bottom end of that, last seen in summer 2023 (before they quickly shot back up to $95), so the edges of the price band in both directions have been sensitive to overreaction as of late.
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.