Author: dredheadz

The Markets (as of market close September 6, 2024)

September has clearly gotten off to a rough start for Wall Street. Stocks plunged lower on fears of an economic decline and a waning labor market. Investors feared that the Federal Reserve, which is now more likely to drop interest rates by at least 50.0 basis points when it meets in a few weeks, may be responding too late. Tech stocks took a big hit with the NASDAQ falling nearly 6.0% last week and nearly 12.0% since July 10. Consumer staples, real estate, and utilities were the only market sectors to gain last week. Information technology declined 7.0%, posting the largest loss among the remaining sectors. Crude oil prices have fallen to levels not seen since 2023. Ten-year Treasuries saw their biggest weekly drop in five weeks, having fallen four straight days and seven of the last 10 days.

The day after Labor Day saw stocks close markedly lower, driven by a notable selloff in technology shares. A major AI company, which had been surging for much of the year, saw its stock decline. The NASDAQ fell 3.3%, the Russell 2000 declined 3.1%, the S&P 500 lost 2.1%, the Dow dropped 1.6%, and the Global Dow dipped 1.2%. Ten-year Treasury yields closed at 3.84%, a decline of 6.7 basis points. Crude oil prices settled at $70.34 per barrel. The dollar inched up 0.1%, while gold prices dipped 0.2%.

Stocks continued their tailspin last Wednesday. Investors concerned that the economy may be weakening were not encouraged by data that showed a decline in job openings in July (see below). Energy shares led the decline, while tech stocks also underperformed. Of the benchmark indexes listed here, only the Dow ticked up 0.1%. The remaining indexes fell, led by the Global Dow (-0.4%), followed by the NASDAQ (-0.3%). The Russell 2000 and the S&P 500 each lost 0.2%. As investors moved away from stocks, bond prices rose, dragging yields lower. The 10-year Treasury yield fell 7.6 basis points to 3.76%. Crude oil prices fell below $70.00 per barrel after settling at $68.84 per barrel. The dollar lost 0.5%, while gold prices were unchanged from the previous day.

Tech stocks rebounded somewhat last Thursday, but the remaining sectors continued to swoon. The NASDAQ gained 0.3% to lead the benchmark indexes listed here. The Russell 2000 fell 0.6%, the Dow declined 0.5%, the S&P 500 dipped 0.3%, and the Global Dow slid 0.2%. Ten-year Treasury yields lost 3.7 basis points, settling at 3.73%. Crude oil prices dipped 0.1% to $69.13 per barrel. The dollar fell 0.3%, while gold prices rose 0.8%.

Stocks fell on Friday, dragged lower by worries over a slowdown in the labor market and a tech selloff. The NASDAQ lost 2.6%, the Russell 2000 fell 1.9%, the S&P 500 dropped 1.7%, the Global Dow declined 1.2%, and the Dow sank 1.0%. Ten-year Treasury yields lost 2.1 basis points. Crude oil prices decreased 1.5%. The dollar inched up 0.1%. Gold prices fell 0.7%.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• Employment increased by 142,000 in August, in line with recent average monthly job growth, but well below the 12-month average of 202,000. Employment growth was revised down in June (-61,000) and July (-25,000), which rendered a combined decrease of 86,000. In August, the unemployment rate ticked down 0.1 percentage point to 4.2%, while both the labor force participation rate (62.7%) and the employment-population ratio (60.0%) were unchanged from the previous month. The total number of unemployed, at 7.1 million, was essentially unchanged from July. Long-term unemployed (+27 weeks) was little changed at 1.5 million. In August, average hourly earnings increased by $0.14, or 0.4%, to $35.21. Over the past 12 months, average hourly earnings have increased by 3.8%. The average workweek edged up by 0.1 hour to 34.3 hours in August.
• According to the S&P Global US Manufacturing PMI®, manufacturing production decreased for the first time in seven months in August as sales continued to fall due to increasing reports of demand weakness. Slower sales also led to a reduction in employment. The S&P Global US Manufacturing Purchasing Managers’ Index™ posted 47.9 in August, down from 49.6 in July. A reading under the 50.0 mark indicates retraction in manufacturing. The reduction in new orders was the most since June 2023.
• Unlike the manufacturing sector, services expanded in August, with business activity expanding at the fastest pace in nearly two-and-a-half years. The S&P Global US Services PMI® Business Activity Index rose to 55.7 last month, up from 55.0 in July. New orders increased as did input costs, which may have contributed to a decrease in employment.
• The latest data on the international trade in goods and services was released on September 4 and is for July. According to that report, the goods and services trade deficit was $78.8 billion, $5.8 billion, or 7.9%, above the June figure. July exports were $266.6 billion, $1.3 billion, or 0.5%, more than June exports. July imports were $345.4 billion, $7.1 billion, or 2.1%, more than June imports. Year to date, the goods and services deficit increased $36.2 billion, or 7.7%, from the same period in 2023. Exports increased $65.9 billion, or 3.7%. Imports increased $102.1 billion, or 4.5%.
• According to the latest Job Openings and Labor Turnover Summary, on the last business day of July, the number of job openings, at 7.7 million, was about 300,000 below the June figure and was down by 1.1 million over the year. This is the fewest job openings since January 2021. The number of hires in July increased by 273,000 to 5.5 million. The number of total separations rose by 336,000 to 5.4 million. In July, the number of quits was essentially unchanged at 3.3 million but was down by 338,000 over the year.
• The national average retail price for regular gasoline was $3.289 per gallon on September 2, $0.024 per gallon under the prior week’s price and $0.518 per gallon less than a year ago. Also, as of September 2, the East Coast price fell $0.021 to $3.233 per gallon; the Midwest price decreased $0.037 to $3.171 per gallon; the Gulf Coast price dipped $0.050 to $2.844 per gallon; the Rocky Mountain price increased $0.044 to $3.401 per gallon; and the West Coast price rose $0.051 to $4.101 per gallon.
• For the week ended August 31, there were 227,000 new claims for unemployment insurance, a decrease of 5,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended August 24 was 1.2%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended August 24 was 1,838,000, a decrease of 22,000 from the previous week’s level, which was revised down by 8,000. States and territories with the highest insured unemployment rates for the week ended August 17 were New Jersey (2.8%), Rhode Island (2.5%), Puerto Rico (2.3%), California (2.1%), Minnesota (2.0%), Connecticut (1.8%), New York (1.8%), Pennsylvania (1.8%), Massachusetts (1.7%), and Washington (1.7%). The largest increases in initial claims for unemployment insurance for the week ended August 24 were in New York (+2,604), Michigan (+1,322), Georgia (+1,166), North Dakota (+992), and Massachusetts (+748), while the largest decreases were in Texas (-1,515), Florida (-1,313), California (-965), Washington (-522), and Virginia (-517).

Eye on the Week Ahead

The latest inflation data is out this week with the releases of the Consumer Price Index and the Producer Price Index. The CPI increased 2.9% over the 12 months ended in June, while the PPI rose 2.2% over the same period.

The Markets (as of market close August 30, 2024)

Despite moments of trepidation, the stock market extended its winning streak to three straight weeks. And even with its rough start, August marked the fourth month in a row of positive returns. Several encouraging reports suggested that the economy is holding up and inflation is moderating, keeping alive hopes of a soft landing and a September rate cut by the Federal Reserve. The Dow posted the largest gain to close out the week at an all-time high, and the Global Dow also soared. The large caps of the S&P 500 posted a modest gain, the small caps of the Russell 2000 treaded water, and the tech-heavy NASDAQ ended the week in the red. Financials, energy, and materials were the top performing sectors, while information technology and communication services lagged. Bond prices fell, pushing up 10-year Treasury yields. Regardless of heightened geopolitical tensions, crude oil prices slipped due to expectations of weaker global demand. Gold prices fell and the dollar rose.

Stocks couldn’t maintain their momentum last Monday, though the Dow (0.2%) and the Global Dow (0.1%) pulled off slight gains. Declining tech stocks dragged down the NASDAQ (-0.9%), while the Russell 2000 (-0.4%) and the S&P 500 (-0.3%) also posted losses. The 10-year Treasury yield fell to 3.82%. Crude oil spiked more than 2.9% on the news that Libya would halt exports. Gold prices and the dollar also rose.

The Global Dow (0.4%), the NASDAQ (0.2%), and the S&P 500 (0.2%) all closed higher on Tuesday, while the Russell 2000 declined 0.7%. The Dow ended the day where it began, sitting at an all-time high. The 10-year Treasury yield rose slightly to 3.82%. Crude oil prices dropped 2.2% to about $75 per barrel. Gold prices advanced and the dollar retreated.

Last Wednesday, all of the benchmark stock indexes listed here ended up in the red. The NASDAQ fell 1.1%, followed by the Russell 2000 (-0.7%), the S&P 500 (-0.6%), the Dow (-0.4%), and the Global Dow (-0.3%). The 10-year Treasury yield ticked up again to 3.84%. Crude oil prices fell more than 1.5%. Gold lost value and the dollar advanced.

Stock market returns were mostly positive on Thursday, with one major exception. Shares of a high-profile chipmaker sold off due to a disappointing forecast, even though it reported second-quarter earnings that beat expectations. Those losses weighed on the NASDAQ, which fell 0.2%. The S&P 500 and the Global Dow both ended the day flat. The small caps of the Russell 2000 posted a 0.7% gain, followed closely by the Dow, which climbed 0.6% to reach another record high. The yield on 10-year Treasuries inched up for the third-straight day to close at 3.86%. Crude oil prices rose nearly 2.0%, settling just under $76.00 per barrel. Gold prices and the dollar also advanced.

Investors kicked off the holiday weekend in good spirits on Friday, after the Fed’s preferred gauge pointed to tamer inflation.(See below.) All of the major stock indexes listed here closed higher. The NASDAQ gained 1.1% and the S&P 500 rose 1.0%, followed by the Russell 2000, which climbed 0.7%. The Global Dow and the Dow returned 0.6%.. The benchmark 10-year Treasury yield added 4.4 basis points and settled at 3.91%. Crude oil prices dropped 3.0% and Gold prices fell 1.0%, while the dollar edged up slightly.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• The economy grew at an annualized rate of 3.0% in the second quarter according to the second estimate of gross domestic product. GDP accelerated at a rate of 1.4% in the first quarter. The personal consumption expenditures (PCE) price index increased 2.5%. Excluding food and energy prices, the PCE price index increased 2.8%. Consumer spending, as measured by the personal consumption expenditures index, rose 2.9%. Spending on goods increased 3.0%, while spending on services climbed 2.9%. Residential fixed investment declined 2.0%, while nonresidential (business) fixed investment increased 4.6%. Exports rose 1.6% and imports, which are a negative in the calculation of GDP, jumped 7.0%.
• Prices consumers paid for goods and services, as measured by the personal consumption expenditures (PCE) price index, rose 0.2% in July following a 0.1% increase in June. Excluding food and energy, prices increased 0.2%. Over the 12 months ended in July, the PCE price index rose 2.5%, the same as the 12-month estimate for the period ended in June. Prices for goods decreased by less than 0.1%, and prices for services increased 3.7%. The July 12-month increase in prices excluding food and energy was 2.6%, unchanged from the 12 months ended in June. Also in July, personal income increased 0.3%, while disposable personal income advanced 0.3%. Consumer spending, as measured by the personal consumption expenditures (PCE) index, increased 0.5% in July, up from the June estimate of 0.3%.
• Durable goods orders shot up 9.9% in July after dropping 6.9% in June. Excluding transportation, new orders decreased 0.2%. Excluding defense, new orders increased 10.4%. The 34.8% jump in new orders for transportation equipment (mainly aircraft) drove the overall increase in July. New orders for nondefense capital goods in July increased 41.9%.
• According to the advance report on international trade in goods (excluding services), the deficit for July widened by $6.1 billion, or 6.3%, from June. Exports were virtually unchanged, while imports decreased $6.1 billion, or 2.3%. Since July 2023, exports have risen 4.4% and imports have surged 8.2%.
• The national average retail price for regular gasoline was $3.313 per gallon on August 26, $0.069 per gallon under the prior week’s price and $0.500 per gallon less than a year ago. Also, as of August 26, the East Coast price fell $0.045 to $3.254 per gallon; the Midwest price decreased $0.114 to $3.208 per gallon; the Gulf Coast price dipped $0.102 to $2.894 per gallon; the Rocky Mountain price increased $0.114 to $3.357 per gallon; and the West Coast price decreased $0.008 to $4.050 per gallon.
• For the week ended August 24, there were 231,000 new claims for unemployment insurance, a decrease of 2,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended August 17 was 1.2%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended August 17 was 1,868,000, an increase of 13,000 from the previous week’s level, which was revised down by 8,000. States and territories with the highest insured unemployment rates for the week ended August 10 were New Jersey (2.8%), Rhode Island (2.5%), California (2.2%), Puerto Rico (2.1%), Minnesota (2.0%), Connecticut (1.8%), Massachusetts (1.8%), Pennsylvania (1.8%), Nevada (1.7%), New York (1.7%), and Washington (1.7%). The largest increases in initial claims for unemployment insurance for the week ended August 17 were in Florida (+2,153), California (+979), Indiana (+854), South Carolina (+645), and Virginia (+408), while the largest decreases were in Michigan (-2,847), Texas (-1,952), New Jersey (-1,010), Georgia (-979), and Puerto Rico (-779).

Eye on the Week Ahead

Results from the August purchasing managers’ indexes (PMI) for manufacturing and services will be released this week. Two important employment reports for August are also coming out. Labor market data is highly anticipated at this critical juncture for the economy, especially after last month’s disappointing jobs report raised expectations that the Federal Reserve will cut interest rates substantially in September.

The Markets (as of market close August 30, 2024)

Stocks closed mostly higher in August, buoyed by a strong close to the month. Favorable inflation data and economic reports helped drive stocks higher toward the end of the month as investors took heed of Federal Reserve Chair Jerome Powell’s statement that it is approaching time to lower interest rates. The Global Dow led the benchmark indexes, with the S&P 500, the Dow, and the NASDAQ all ending the month higher. The Russell 2000 wasn’t able to keep pace as it closed the month lower. Despite the strong finish, stocks rode a bumpy ride, falling lower mid-month as investors worried that the economy was slowing, and the Fed didn’t react in time to stem the negative tide. However, as more favorable economic reports emerged and the Fed seemed ready to ease its restrictive monetary policy, investors were ready to jump back into the market. Among the market sectors, only consumer discretionary and energy declined, while real estate and consumer staples advanced the most.

Inflationary data showed price pressures continued to stabilize in July. The 12-month interest rates for the Consumer Price Index (CPI) and the personal consumption expenditures (PCE) price index each came in at 2.9%, as they inched closer to the Federal Reserve’s 2.0% target range. Since 2018, the annual inflation rate has dropped notably from a high of 6.2% in October 2021. Prices for commodities that are prevalent for most households, such as food at home, gasoline, new and used motor vehicles, and apparel, changed very little over the year. Shelter costs were up 0.4% in July and up 5.1% compared to July 2023. Shelter costs are decelerating only slowly and still a significant contributor to upward price pressure on services.

Growth of the U.S. economy continued at a modest pace, despite the Fed’s restrictive monetary policy. The gross domestic product (GDP) met expectations after increasing 3.0% in the second quarter following a 1.4% increase in the first quarter (see below). Consumer spending, the largest contributor in the calculation of GDP, rose 2.9%, with spending rising in durable goods, nondurable goods, and services. Gross domestic income, another indicator of the health of the economy, rose 1.3% in the second quarter. Moderate economic growth should be another plus as the Fed weighs its current monetary policy.

Job growth continued to slow in July, falling short of expectations. Downward revisions to estimates for June and May clearly show that average monthly gains in the second quarter of the year (177,000) are well below the average gains in the first quarter (267,000). Wage growth declined 0.3 percentage point over the past 12 months. New weekly unemployment claims decreased from a year ago, while total claims paid increased (see below).

Nearing the end of Q2 corporate earnings season, S&P 500 companies are reporting mixed results. About 91% of the S&P 500 companies have reported results. Of those companies, 78% reported earnings per share (EPS) above estimates, which is in line with the five-year average of 77% and higher than the 10-year average of 74%. Overall, as of August 12, the index reported an aggregate earnings growth rate of 3.5%, which is below the 5-year average of 8.6% and below the 10-year average of 6.8%. In general, the market has rewarded companies that reported positive earnings surprises with price increases, while companies that fell short of earnings expectations have generally seen their stock values dip.

Sales of both existing homes and new homes rose in July (see below). While home sales remain a bit sluggish, buyers are seeing more choices partly due to more inventory and slightly lower mortgage rates. Higher mortgage rates have slowed sales, with inventory expanding and the sales process lengthening. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.49% as of August 15, up from 6.47% one week ago, but down from 7.09% from one year ago.

Industrial production retracted in July from June, which saw a 0.3 percentage point revision lower. Manufacturing output decreased in July and was 0.1% above its year-earlier level. Within manufacturing, durables manufacturing declined 0.9% but nondurables rose 0.4%. In July, the manufacturing sector retracted in for the first time in seven months, while the services sector saw a notable expansion of business activity.

Bond yields fell as bond prices increased in August. Ten-year Treasury yields generally closed the month lower. The two-year Treasury yield dropped 3.7 basis points to about 3.93% on the last trading day of August. The dollar weakened against a basket of world currencies, driven lower by the anticipated interest rate cuts later in the year. Gold prices hit a record high of $2,535.30 to close out August. Crude oil prices declined, as investors anticipated a supply increase by OPEC+ in October and decreased demand in China. Gasoline prices hit an eight-month low, as the retail price of regular gasoline was $3.313 per gallon on August 26, $0.158 below the price a month earlier and $0.500 less than the price a year ago.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Latest Economic Reports

• Employment: Total employment increased by 114,000 in July, well below the consensus of 180,000 and lower than the 12-month average gain of 215,000. The July increase followed downward revisions in both May and June, which totaled 29,000. In July, job gains occurred in health care, transportation and warehousing, and construction. In July, the unemployment rate increased 0.2 percentage point to 4.3% and was 0.8 percentage point above the rate from a year earlier (3.5%). The number of unemployed persons increased by 352,000 to 7.2 million. In July, the number of long-term unemployed (those jobless for 27 weeks or more) was relatively unchanged at 1.5 million and accounted for 21.6% of all unemployed people. The labor force participation rate, at 62.7%, was 0.1 percentage point above the prior month’s estimate, while the employment-population ratio, at 60.0%, ticked down 0.1 percentage point from the previous month. In July, average hourly earnings increased by $0.08, or 0.2%, to $35.07. Since July 2023, average hourly earnings rose by 3.6%, which is down from the June figure of 3.9%. The average workweek edged down 0.1 hour to 34.2 hours.
• There were 231,000 initial claims for unemployment insurance for the week ended August 24, 2024. During the same period, the total number of workers receiving unemployment insurance was 1,868,000. A year ago, there were 234,000 initial claims, while the total number of workers receiving unemployment insurance was 1,859,000.
• FOMC/interest rates: The Federal Open Market Committee did not meet in August. However, it is highly anticipated that the Committee will lower the target rate by at least 25.0 basis points following its meeting in September.
• GDP/budget: According to the second estimate from the Bureau of Economic Analysis, the economy, as measured by gross domestic product, accelerated at an annualized rate of 3.0% in the second quarter of 2024, up from the first estimate of 2.8%. GDP increased 1.4% in the first quarter. Personal consumption expenditures rose 2.9% in the second quarter compared to a 1.5% increase in the previous quarter. Consumer spending on goods increased 3.0%, while spending on services rose 2.9%. Personal consumption expenditures (1.95%) contributed the most to overall economic growth. Gross domestic investment advanced 7.5% in the second quarter, well above the 4.4% increase in the first quarter. Nonresidential (business) fixed investment advanced 4.6% in the second quarter (4.4% in the first quarter), while residential fixed investment rose 2.0% compared to a 16.0% increase in the first quarter. Exports climbed 1.6%, while imports, which are a negative in the calculation of GDP, increased 7.0%. Consumer prices, as measured by the personal consumption expenditures price index, increased 2.6%, compared with an increase of 3.4% in the first quarter. Excluding food and energy prices, the PCE price index increased 2.9%, compared with an increase of 3.7% in the prior quarter.
• The federal budget deficit in July was $244.0 billion following June’s deficit of $71.0 billion. In July, government receipts totaled $330.0 billion, while government outlays were $574.0 billion. Through the first 10 months of fiscal year 2024, the total deficit sits at $1,517.0 trillion, which is roughly $357.0 billion lower than the deficit through the first 10 months of the previous fiscal year.
• Inflation/consumer spending: The PCE price index increased 0.2% in July, right at expectations, after increasing 0.1% in June. The 12-month PCE price index for July, at 2.5%, was unchanged from the June figure. Excluding food and energy, the PCE price index increased 0.2% for July and 2.6% for the year ended in July. Both estimates were unchanged from June. Both personal income and disposable personal income (less taxes) advanced 0.3% in July. Personal spending, as measured by personal consumption expenditures, rose 0.5% in July (0.3% in June).
• The Consumer Price Index (CPI) rose 0.2% in July after declining 0.1% in June. Over the 12 months ended in July, the CPI rose 2.9%, down 0.1 percentage point from the 12-month period ended in June. This was the smallest 12-month increase since March 2021. Excluding food and energy, the CPI rose 0.2% in July, (0.1% in June), and 3.2% from July 2023, which is the smallest 12-month increase since April 2021. In July, nearly 90.0% of the monthly increase was attributable to a 0.4% rise in prices for shelter. Energy prices were unchanged from June, while prices for food rose 0.2% in July (2.2% for the year).
• The Producer Price Index rose 0.1% in July following a 0.2% increase in June. The increase was attributable to a 0.6% increase in prices for goods. Prices for services, which had been stubbornly higher, declined 0.2% in July. For the 12 months ended in July, producer prices advanced 2.2%, 0.4 percentage point below the rate for the 12-months ended in June. Prices for services rose 2.6% for the year ended in July, the lowest rate since early this year.
• Housing: Sales of existing homes rose 1.3% in July, but declined 2.5% over the last 12 months. According to the National Association of Realtors® (NAR), the market for existing homes remained sluggish, although an increase in choices and slowly declining mortgage interest rates helped increase sales. Unsold inventory of existing homes in July represented a 4.0-month supply at the current sales pace, down slightly from the June estimate. The median existing-home price was $422,600 in July, down from the June estimate of $426,900, but 4.2% above the July 2023 price of $405,600. Sales of existing single-family homes increased 1.4% in July but were 1.4% under the July 2023 rate. The median existing single-family home price was $428,500 in July, down from $432,900 in June and well above the July 2023 estimate of $411,200.
• New single-family home sales also increased in July, climbing 10.6% above the June estimate and 5.6% higher than the July 2023 rate. The median sales price of new single-family houses sold in July was $429,800 ($416,700 in June). The July average sales price was $514,800 ($501,700 in June). The inventory of new single-family homes for sale in July represented a supply of 7.5 months at the current sales pace, down from 8.4 months in June.
• Manufacturing: Industrial production decreased 0.6% in July following a 0.3% advance in June. Early July shutdowns concentrated in the petrochemical and related industries due to Hurricane Beryl held down the growth of industrial production by an estimated 0.3 percentage point. Manufacturing output dipped 0.3% in July as manufacturing of motor vehicles and parts fell nearly 8.0%. Manufacturing excluding motor vehicles and parts rose 0.3%. Mining output was unchanged in July, while utilities declined 3.7%. For the 12 months ended in July, total industrial production was 0.2% below its year-earlier level. Over the same period, manufacturing increased 0.1%, mining decreased 1.5%, while utilities fell 0.1%.
• New orders for durable goods jumped 9.9% in July, following June’s 6.9% decrease. Excluding transportation, new orders decreased 0.2%. Excluding defense, new orders increased 10.4%. Transportation equipment, up two of the last three months, drove the increase after climbing 34.8%. New orders for nondefense capital goods advanced 41.9% in July, while new orders for defense capital goods increased 1.2%.
• Imports and exports: U.S. import prices ticked up 0.1% in July after being unchanged in June. Prices for import fuel increased 0.5% in July after declining 1.7% the previous month. Import prices advanced 1.6% over the last 12 months, the largest 12-month increase since December 2022. Export prices increased 0.7% in July after declining 0.3% the previous month. Higher nonagricultural prices in July more than offset lower prices for agricultural exports. Export prices increased 1.4% over the past year, the largest 12-month advance since January 2023.
• The international trade in goods deficit was $102.7 billion in July, up $6.1 billion, or 6.3%, from June. Exports of goods were $172.9 billion in July, virtually unchanged from June exports. Imports of goods were $275.6 billion in July, $6.1 billion, or 2.3%, above the June estimate. Since July 2023, exports increased 4.4%, while imports increased 8.2%.
• The latest information on international trade in goods and services, released August 6, is for June and revealed that the goods and services trade deficit was $73.1 billion, down $1.9 billion, or 2.5%, from the May deficit. June exports were $265.9 billion, 1.5% more than May exports. June imports were $339.0 billion, 0.6% above May’s estimate. Year to date, the goods and services deficit increased $22.7 billion, or 5.6%, from the same period in 2023. Exports increased $58.0 billion, or 3.8%. Imports increased $80.7 billion, or 4.2%.
• International markets: Global inflation continued to trend lower. Eurozone inflation hit a three-year low when the annual rate fell to 2.2% in August. The Euro fell to a two-week low after trading at $1.108 at the end of August as falling consumer prices reinforced expectations for an August rate cut by the European Central Bank. Declining inflation also impacted bond yields. The 10-year German bond yield fell to 2.25% as investors anticipated rate cuts. In China, manufacturing PMI retracted to 49,08, while the GDP slipped from 5.3% to 4.7%. For August, the STOXX Europe 600 Index rose 5.5%; the United Kingdom’s FTSE gained 2.5%; Japan’s Nikkei 225 Index rose 7.6%; and China’s Shanghai Composite Index declined 2.2%.
• Consumer confidence: Consumer confidence rose in August to 103.3, from an upwardly revised 101.9 in July, according to the Conference Board Consumer Confidence Index®. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, improved to 134.4 in August, up from 133.1 in the previous month. The Expectations Index, based on consumers’ short-term outlook for income, business, and labor market conditions, increased to 82.5 in August, up from 81.1 in July.

Eye on the Month Ahead

The Federal Reserve meets this month. Presuming relevant data shows that inflationary pressures have moderated, it is expected that the Fed will opt to decrease the federal funds rate by at least 25.0 basis points.

The Markets (as of market close August 23, 2024)

Investors finally heard what they had been waiting for after Federal Reserve Chair Jerome Powell gave clear indications that the central bank will lower interest rates in September. Powell noted that the labor market has cooled and inflation is slowing. In an up and down week for stocks, each of the benchmark indexes listed here ended up closing higher, led by the RUSSELL 2000. Crude oil prices rallied at the end of the week, but not enough to avoid closing in the red. Typically, falling interest rates stimulate economic growth, which includes rising demand for oil. However, worldwide energy demand, particularly in China, has waned, keeping oil prices somewhat muted. Ten of the 11 market sectors closed higher, led by materials, consumer discretionary, and financials. Energy ticked lower.

Last Monday saw stocks continue to build off of the prior week’s gains. The S&P 500 (1.4%) and the NASDAQ (1.0%) moved higher for the eighth straight session, the longest streak of the year. The small caps of the RUSSELL 2000 gained 1.2%, the GLOBAL DOW advanced 1.0%, and the DOW added 0.6%. The dollar fell 0.6% to a seven-month low, as signs of waning inflation furthered expectations of an interest rate cut next month. Ten-year Treasury yields dipped to 3.86%. Crude oil prices fell nearly 3.0% to $74.52 per barrel on weak Chinese demand. Gold prices rose 0.2%.

The winning streak for the S&P 500 and the NASDAQ ended at eight days following last Tuesday’s downturn. The RUSSELL 2000 declined 1.2%, the Nasdaq fell 0.3%, the S&P 500 dipped 0.2%, the Dow and the Global Dow slipped 0.1%. Investors pulled back from stocks ahead of the upcoming Jackson Hole symposium, highlighted by a speech from Fed Chair Jerome Powell. Among the market sectors, health care and consumer staples performed the best, while energy and materials were among the worst performers. Yields on 10-year Treasuries continued to decline, settling at 3.81%. Crude oil prices dropped to $73.82 per barrel. The dollar fell 0.5% against a basket of currencies. Gold prices rose 0.5%.

Stocks rallied modestly last Wednesday as minutes from the July Federal Reserve meeting indicated that policymakers would consider easing the restrictive economic policy in place (i.e., lower interest rates) in September. The RUSSELL 2000 recouped most of the prior day’s losses after gaining 1.3%. The NASDAQ rose 0.6%, while the S&P 500 and the GLOBAL DOW gained 0.4%. The DOW inched up 0.1%. Crude oil prices closed in the red, settling at $71.94 per barrel. Ten-year Treasury yields dipped to 3.77%. The dollar declined 0.3%, while gold prices were relatively unchanged.

Volatile continued to best describe the stock market last week. After moving higher last Monday, equities declined on Tuesday, rebounded on Wednesday, and fell on Thursday. Investors awaited Fed Chair Jerome Powell’s Jackson Hole speech with apprehension. While the minutes from the July meeting seemed to support an interest rate decrease, investors may be looking for a more definitive indication from Powell. A drop in tech shares pulled the NASDAQ down 1.7%. The RUSSELL 2000 fell 1.0%, the S&P 500 lost 0.9%, the DOW declined 0.4%, and the GLOBAL DOW dipped 0.3%. Ten-year Treasury yields rose to 3.86%. Crude oil prices climbed 1.4% to $72.94 per barrel. The dollar gained 0.5%, while gold prices edged lower.

Stocks posted solid gains following Fed Chair Powell’s speech. The RUSSELL 2000 gained 3.2% and the NASDAQ rose 1.5%. The S&P 500 and the GLOBAL DOW added 1.2%, while the DOW advanced 1.1%. Ten-year Treasury yields closed at 3.80%, as they approached their lowest level in 14 months. Crude oil prices rose 2.6%, the dollar fell 0.8%, and gold prices rose 1.2%.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• Sales of existing homes increased in July for the first time since February. Existing home sales rose 1.3% in July. Year over year, sales were down 2.5%. Total inventory sat at a 4.0-month supply. The median existing home price was $422,600 in July, down from June’s $426,900 but above the July 2023 price of $405,600. Sales of single-family homes advanced 1.4% in July but declined 1.4% from a year ago. The median existing single-family home price was $428,500 last month, down from the June estimate of $432,900 but above the July 2023 price of $411,200. As of August 15, the 30-year fixed-rate mortgage averaged 6.49%, according to Freddie Mac, which was up from 6.47% one week ago, but down from 7.09% from a year ago.
• Sales of new single-family homes also picked up steam in July, climbing 10.6% for the month and 5.6% above the total from the previous year. The median sales price of new houses sold in July was $429,800. The average sales price was $514,800. The inventory of new single-family homes available for sale represented a 7.5-month supply at the current sales rate.
• The national average retail price for regular gasoline was $3.382 per gallon on August 19, $0.032 per gallon under the prior week’s price and $0.486 per gallon less than a year ago. Also, as of August 19, the East Coast price fell $0.027 to $3.299 per gallon; the Midwest price decreased $0.072 to $3.322 per gallon; the Gulf Coast price dipped $0.003 to $2.996 per gallon; the Rocky Mountain price increased $0.057 to $3.471 per gallon; and the West Coast price decreased $0.014 to $4.058 per gallon.
• For the week ended August 17, there were 232,000 new claims for unemployment insurance, an increase of 4,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended August 10 was 1.2%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended August 10 was 1,863,000, an increase of 4,000 from the previous week’s level, which was revised down by 5,000. This is the highest level for insured unemployment since November 27, 2021, when it was 1,878,000. States and territories with the highest insured unemployment rates for the week ended August 3 were New Jersey (2.8%), Puerto Rico (2.6%), Rhode Island (2.6%), California (2.2%), Minnesota (2.0%), Pennsylvania (1.9%), Connecticut (1.8%), Massachusetts (1.7%), Nevada (1.7%), New York (1.7%), and Washington (1.7%). The largest increases in initial claims for unemployment insurance for the week ended August 10 were in Georgia (+693), Michigan (+584), Virginia (+357), New Jersey (+339), and Kansas (+233), while the largest decreases were in California (-2,585), Texas (-1,438), Massachusetts (-972), Pennsylvania (-604), and Iowa (-508).

Eye on the Week Ahead

The second release of gross domestic product for quarter two is out this week. The initial estimate showed the economy expanded at an annualized rate of 2.8%. Also out this week is the report on personal income and outlays for July, which is also a potential market mover. One of the most important parts of the report is the personal consumption expenditures price index, a measure of inflation favored by the Federal Reserve. In June, consumer prices ticked up 0.1% and rose 2.5% for the year ended in June.

The Markets (as of market close August 2, 2024)

Wall Street experienced a notable downturn last week, with each of the benchmark indexes closing sharply in the red. A weaker-than-expected jobs report, rising unemployment claims, disappointing corporate earnings from major tech firms, and falling manufacturing data prompted the major sell-off last week. Evidence of a slowing economy may prompt the Federal Reserve to cut interest rates in September, but many analysts and investors believe the Fed is behind the curve in cutting rates, especially when other central banks have already done so. There was a huge swing in the market sectors last week, where utilities (4.5%) and real estate (3.9%) turned sharply higher, while information technology (-4.1%), consumer discretionary (-3.8%), and energy (-3.4%) turned sharply lower. Bond prices jumped higher as demand increased, pulling yields lower. Ten-year Treasury yields fell to their lowest level since December 2023. Crude oil prices dropped by more than 3.5%, while gold prices climbed higher.

The week kicked off with the Nasdaq, the S&P 500, and the Global Dow ticking up minimally, while the Dow dipped 0.1% and the Russell 2000 fell 1.1%. Investors awaited the release of quarterly earnings from several tech companies, the outcome of the Federal Reserve’s latest meeting, and labor data for July. Bond prices held steady, with yields on 10-year Treasuries slipping to 4.17%. Crude oil prices continued to fade, down 1.7% to $75.83 per barrel. The dollar gained 0.2%, while gold prices were essentially unchanged.

Last Tuesday saw investors flee stocks, particularly tech shares, and move to bonds after an acceleration of the unrest in the Middle East and ahead of the Fed’s meeting on Wednesday. The tech-heavy Nasdaq lost 1.3%, while the S&P 500 fell 0.5% behind weakness in technology, consumer discretionary, and consumer staples. However, the Dow (0.5%), the Russell 2000 (0.4%), and the Global Dow (0.2%) moved higher. Demand for bonds drove prices up and pulled yields lower. Ten-year Treasury yields fell to 4.14%. Crude oil prices declined to $75.08 per barrel. The dollar was unchanged, while gold prices gained 1.2%.

Stocks closed up last Wednesday as investors were encouraged that interest rates may be reduced in September following statements from the Federal Open Market Committee and its chair, Jerome Powell. Each of the benchmark indexes listed here climbed higher, led by the Nasdaq (2.6%), followed by the S&P 500 (1.6%), the Global Dow (1.2%), the Russell 2000 (0.5%), and the Dow (0.2%). Tech stocks, which had been trending lower, reversed course, helping to drive the indexes higher. Ten-year Treasury yields dipped to 4.10%. The dollar fell nearly 0.5%, while gold prices rose 1.7%. Crude oil prices, which had been sinking, jumped 5.1% to $78.53 per barrel.

A sharp sell-off in chip stocks sent the markets reeling last Thursday. Each of the benchmark indexes ended the session firmly in the red, led by the Russell 2000 (-3.0%) and the Nasdaq (-2.3%). The remaining benchmarks fell between 1.2% and 1.6%. Ten-year Treasury yields declined 3.2%, or 13.3 basis points, settling at 3.97%, moving below the 4.00% level for the first time since February. Crude oil prices dropped to $76.90 per barrel. The dollar and gold prices gained 0.3% and 0.6%, respectively. Investors reacted to contraction in the manufacturing sector (see below) and jobless claims rising to an 11-month high.

Stocks plunged lower last Friday as investors saw unemployment claims rise and job gains fall. The interest-sensitive Russell 2000 lost 3.5%, followed by the Nasdaq (-2.4%), Global Dow (-2.1%), the S&P 500 (-1.8%), and the Dow (-1.5%). Ten-year Treasury yields dropped over 18.0 basis points, crude oil prices fell 2.9%, the dollar slipped 1.1%, while gold prices were unchanged.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• The Federal Open Market Committee met last week and decided to keep the target range at its current 5.25%-5.50%. However, it appears that if inflation continues to stabilize, the FOMC may lend more consideration to reducing interest rates when it next meets in September.
• Employment slowed in July, according to the latest data from the Bureau of Labor Statistics. Employment rose by only 114,000 last month, well below the 12-month average of 215,000. In July, employment continued to trend up in health care, in construction, and in transportation and warehousing, while information lost jobs. The number of unemployed, at 7.2 million, increased by 352,000 over June’s estimate. The unemployment rate increased for the second straight month in July, ticking up 0.2 percentage point to 4.3%. Both the number of unemployed and the unemployment rate are above the July 2023 estimates, at 5.9 million and 3.5%, respectively. The number of long-term unemployed (those jobless for 27 weeks or more) changed little at 1.5 million in July. This measure is up from 1.2 million a year earlier. The long-term unemployed accounted for 21.6% of all unemployed people in July. The labor force participation rate increased 0.1 percentage point to 62.7%, while the employment-population ratio dipped 0.1 percentage point to 60.0%. The May estimate was revised down by 2,000, from 218,000 to 216,000, and the change for June was revised down by 27,000, from 206,000 to 179,000. With these revisions, employment in May and June combined was 29,000 lower than previously reported. In July, average hourly earnings increased by $0.08, or 0.2%, to $35.07. Over the past 12 months, average hourly earnings have increased by 3.6%. The average workweek edged down by 0.1 hour to 34.2 hours in July.
• According to the latest Job Openings and Labor Turnover Summary, the number of job openings, at 8.2 million, was unchanged in June from May but was 941,000 less than the estimate from a year earlier. The number of hires (5.3 million) fell by 314,000, and 554,000 over the year. The number of total separations (5.1 million) declined by 302,000 and 544,000 from a year earlier.
• Manufacturing regressed in July as new orders declined for the first time in three months. The S&P Global US Manufacturing Purchasing Managers’ Index™ fell to 49.6 in July from 51.6 in June. A reading below 50.0 indicates contraction, which occurred for the first time in seven months. New orders decreased at the fastest pace in 2024. Some costs to manufacturers increased markedly in July as survey respondents noted increases in costs for energy, freight, labor, and raw materials. Nevertheless, the rate of overall cost inflation eased to a four-month low.
• The national average retail price for regular gasoline was $3.484 per gallon on July 29, $0.013 per gallon over the prior week’s price but $0.273 per gallon less than a year ago. Also, as of July 29, the East Coast price fell $0.014 to $3.395 per gallon; the Midwest price increased $0.050 to $3.476 per gallon; the Gulf Coast price rose $0.047 to $3.094 per gallon; the Rocky Mountain price advanced $0.072 to $3.395 per gallon; and the West Coast price decreased $0.031 to $4.106 per gallon.
• For the week ended July 27, there were 249,000 new claims for unemployment insurance, an increase of 14,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended July 20 was 1.2%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended July 20 was 1,877,000, an increase of 33,000 from the previous week’s level, which was revised down by 7,000. This is the highest level for insured unemployment since November 27, 2021, when it was 1,878,000. States and territories with the highest insured unemployment rates for the week ended July 13 were New Jersey (2.7%), Rhode Island (2.6%), Puerto Rico (2.4%), California (2.2%), Minnesota (2.0%), Connecticut (1.8%), Massachusetts (1.8%), Pennsylvania (1.8%), Illinois (1.7%), Nevada (1.7%), New York (1.7%), and Washington (1.7%). The largest increases in initial claims for unemployment insurance for the week ended July 20 were in Texas (+5,962), Tennessee (+769), Delaware (+259), and the Virgin Islands (+7), while the largest decreases were in New York (-8,091), Michigan (-6,941), California (-5,326), Missouri (-3,610), and Kentucky (-3,301).

Eye on the Week Ahead

There isn’t much in terms of economic reports available this week. Of some interest is the S&P Global’s survey of service providers for July. The services sector has shown marked resilience during the period of restrictive economic policy and has steadily expanded.