September 2, 2024

“There is no American without labor, and to rob one is to fleece the other”.

Abraham Lincoln

Happy Labor Day to all, as the summer winds down and as the 4th quarter and the presidential election looms, please remember to vote like your pocketbook depends on it. (because it does!). Here are the numbers from last week. The S&P 500 ended the week up slightly .15%, the Dow Jones Industrial average fared better up .88%, the Nasdaq recovered from a volatile week finishing off -.86%. Internationally, things were much better, the FTSE 100 was up 1.07% and the MSCI-EAFE finished up .57%. The yield curve moved from inverted to almost flat with the 2-year yield at 3.919% and the 10-year paying 3.909%.

So, what happened? As Market Watch observed, after getting off to a historically ugly start, August saw the stock market post an equally impressive recovery. The S&P 500 index SPX 1.01% dropped 6.4% in the first three trading days of the month, its worst start to August or any other month since 2002. The decline left the U.S. large-cap benchmark 8.5% below its mid-July record close as investors braced for further turbulence. Instead, the ship steadied, and stocks came roaring back. The Nasdaq Composite COMP was up 1.13%, having had fallen more than 10% from its recent high to enter a market correction, it then roared back, exiting correction territory in just 11 trading days. The Dow Jones Industrial Average DJIA 0.55% returned to record territory, while the S&P 500 finished Friday just 0.3% away from its July 16 record finish. The tumble was attributed in part to a weaker-than-expected July jobs report, which prompted fears the Federal Reserve had already waited too long to begin cutting interest rates. The unwind of the popular Japanese-yen carry trade was seen fanning the flames of the selloff. Consumer Staples and Real Estate led among large-cap sectors. Meanwhile, Energy and Consumer Discretionary were the laggards, a potential signal of risk-off sentiment carrying over from the global tumult earlier in the month.  In another sign of defense, low volatility and low volatility high dividend strategies led among our reported factor indices.

Consumer sentiment improved with the second and final reading of the University of Michigan’s U.S. consumer-sentiment index in August rose slightly to 67.9 from a preliminary 67.8 released earlier in the month, the University of Michigan said Friday.  Economists polled by the Wall Street Journal had expected sentiment to improve slightly to a final reading of 68. The index was 66.4 in July. Additionally, the consumer-confidence index rose to 103.3 this month from a revised 101.9 in July, the Conference Board said Tuesday. That’s the highest reading since February. Economists polled by the Wall Street Journal had forecast the index to register 101 in August, up from the initial July reading of 100.3

And the FED? The previous week in Jackson Hole, Wyo., Federal Reserve Chair Jerome Powell announced that “the time has come” for lower interest rates. So, the market will expect some rate cut at the Federal Open Market Committee meeting on Sept. 18. For the economy, the Federal Reserve has been waiting for a consumer slowdown for a long time. The goal was always to take the heat out of growth without causing a contraction. Gross domestic product was even revised up to 3% in the second quarter on the back of stronger-than-expected consumption. At the same time, the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, was revised slightly lower.

I mention last week that everyone waited with bated breath for Nvidia’s second-quarter results. Nvidia didn’t disappoint—beating both earnings per share and revenue estimates. Moreover, the chip maker announced it was raising the size of its stock buyback program. But it may not be enough to satisfy investors.

Also, good news on the jobs front, Initial jobless claims fell by 2,000 to 231,000 in the week ended August 24, the Labor Department said Thursday. Economists polled by The Wall Street Journal had estimated new claims would fall by 2,000 to 230,000. The four-week moving average of claims fell 4,750 to 231,500. That’s the lowest level since early June.

How about the housing market? Home prices in the 20 biggest U.S. metropolitan areas set another record high in June but showed signs of a prolonged and gradual slowdown. The S&P CoreLogic Case-Shiller 20-city house-price index rose 0.4% in June compared with the previous month. Home prices in the 20 major U.S. metropolitan markets surveyed were up 6.5% in the 12 months ending in June.

That’s a deceleration following an increase of 6.9% the previous month. Economists surveyed by Dow Jones Newswires and the Wall Street Journal expected the 20-city index to increase 6.3%. As for mortgage rates, as Market Watch reports, the 30-year mortgage rate fell for the fourth week in a row to the lowest level since April 2023 — but the response from home buyers, as well as homeowners looking to refinance, was muted. The drop-in rates pushed the market composite index — a measure of mortgage-application volume — up slightly last week, the Mortgage Bankers Association said last Wednesday. But, pending home sales hit a fresh record low in July as declining mortgage rates failed to spark increased activity, in part because of the uncertainty over the election. Pending home sales fell 5.5% in July from the previous month, according to the monthly index released Thursday by the National Association of Realtors (NAR). That pushed the index down to an all-time low. The index hit an all-time low in May but bounced back in June.

So, what’s it look like going ahead? Economists said the strong consumer spending data in July was more important than the inflation data. The 0.4% gain in spending when adjusted for inflation in July means that even if spending is flat in August and September, spending in the third quarter would still be a very strong 3%. A bullish sign has emerged in the latest comeback for stocks, and it should bode well for investors in the months ahead. Normally, September is the market’s cruelest month — except in presidential election years, but with the craziness of this political season we will see if the plays out as expected.

So, fire up the grill for the last Brats and burgers for the summer season and enjoy the fireworks in the political theater to follow. But seriously, I do encourage you to pay attention and exercise your Sacred right to participate in the government that affects all we do.

Mike