August 26, 2024

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffett

As we finished last week with the much-anticipated remarks from the Federal Reserve Chairman, the close of the Democratic convention on their vision for the future and RFK dropping out of the Race. But first here are the good numbers.

All three major U.S. stock indexes booked back-to-back weekly gains. The S&P 500 finished up 1.2%, the Dow Jones Industrial Average gained 1.24%, the NASDAQ continued its winning ways up 1.29%. Internationally, the FSTE 100 added .20% and the MCSI-EAFE was the winner, up 3% for the week. The 2-year Treasury closed with a yield of 3.91% and the 10-Year finished at 3.80%.

As Market Watch reported, Federal Reserve Chair Jerome Powell last Friday announced that “the time has come” for lower interest rates and stressed that the central bank was prepared to slash rates aggressively if the economy were to weaken quickly. The unusually blunt talk from the mild-mannered Fed chief was designed to bolster confidence in the economy, said Torsten Sløk, chief economist at Apollo Global Management, in an interview after the speech. But Powell kept the central bank’s options open, offering no information about when and by how much the Fed would move after September. “Saying ‘the time has come’ does make it sound relatively dramatic, but the data will determine the speed at which interest rates are going to come down,” Sløk said. “Is this a 90-degree turn, or a 25-degree turn?” Sløk wondered, observing that the answer was not clear. What is clear is the markets liked the news and rallied last Friday to finish a strong week.

Though First-time jobless claims did rise slightly, layoffs seem scarce. The economy seems to be chugging along as the past earnings season did not disappoint. Even Artificial Intelligence (AI) giant Nvidia, where there was much concern about potential weakness, reported good numbers.

What should have thrown cold water on the party was the jobs numbers, The U.S. economy created 818,000—or 30 percent—fewer jobs than the Bureau of Labor Statistics (BLS) reported from April 2023 to March 2024, representing the largest downward revision to payrolls since the global financial crisis. The updated numbers were a part of the Department of Labor’s annual benchmark revisions to the payroll data. The BLS adjusts employment data annually to make the payroll figures more accurate, although it is less timely. Officials incorporate state unemployment insurance tax records and cover close to all U.S. jobs. According to the federal statistics agency, the downward adjustments were observed in eight of the 11 industries, led by professional and business services (358,000 fewer), leisure and hospitality (150,000 fewer), manufacturing (115,000 fewer), and trade, transportation, and utilities (104,000 fewer). Last Wednesday, despite the big downward change, there wasn’t a significant market reaction. The tech-heavy Nasdaq Composite ended the day up 0.6% today, while the S&P 500 ticked up by 0.4% and the Dow Jones Industrial Average climbed 55 points, or 0.1%. All eyes seem to be on the Federal Reserve comments.

In other news…Vice President Kamala Harris accepted the Democratic nomination for President Thursday night, giving a roughly 40-minute speech promising to unite the nation while heavily criticizing former President Donald Trump. The entire convention was a demonstration on how to try and convince, what became a relatively small group of viewers that there is excitement now that Joe Biden was shown the door. For 4 days not one detailed proposal was put forth on any significant issue and enough platitudes to choke a horse. As RFK jr. said “The DNC and it’s media organs engineered a surge of popularity for Vice President Harris based upon nothing. No policy no interviews, no debate only smoke and mirrors and balloons on a highly produced Chicago circus” Judging from the ratings numbers and who was watching MSNBC, and CNN led Fox News (with 22% less viewership that 2016 DNC convention viewership), one can only conclude only the democratic faithful was paying attention.

Further as RFK Jr. then withdrew from the Presidential race strategically keeping himself on some ballots and throwing his support behind President Trump.

Most of the “economic vision” was Vice President Harris remarks at a speech prior to the convention indicating tax increases, including taxing unrealized Capital Gains (charging tax on paper gains forcing tax payments without the benefit of having the money from the sale of the asset),Wage and Price controls, More regulations, and more Bidenomics, all while trying to convince all of us its working and good for you.

Enough on this for now, from now until election day its up to the Trump campaign to reveal what the Democrats are selling and remind the public the Democrats have been in charge the last 4 years, something the Harris campaign seems to want us all to forget.

Finally, some good news is it appears U.S. leading indicators index falls in July, but is not signaling recession. The leading index for the economy fell 0.6% in July, the fifth straight monthly decline, the Conference Board said last Monday. Economists polled by the Wall Street Journal had forecast a 0.4% decline. The leading index is a gauge designed to show turning points in the economy but has not worked well in the post-pandemic environment. As you know this has been one of my major concerns in this bull market since 2022.

Also, Sales of newly built homes in the U.S. surged unexpectedly in July, as home builders saw a bump in demand due to falling mortgage rates. Sales are at the highest level since May 2023. It was also the biggest increase in nearly two years.

Mortgage rates helped….. the 30-year rate fell for the third week in a row to the lowest level in 15 months, yet that failed to spur more buying and refinancing activity. The pullback in demand sent the market composite index — a measure of mortgage application volume — down in the past week, according to the Mortgage Bankers Association last Wednesday. The index had fallen for two straight years before briefly turning positive in February.

So, home builders are looking ahead, Toll Brothers home builders reported good earnings and provided guidance which was optimistic for home buyers. “With mortgage rates at their lowest point in a year and trending lower, favorable demographics, and continued imbalance in the supply and demand of homes for sale, we are optimistic that demand will remain solid through the end of fiscal 2024 and into 2025,” Chairman and CEO Douglas C. Yearley, Jr., said.

Needless to say, with all of this affecting the markets the next month or two will prove most interesting as Wall Street digests if the political theater will result in sound capitalistic policy or we continue the march toward socialism. Regardless we encourage everyone to pay attention and most importantly vote

.

Mike