2024 Week 34

1. Bullish Reaction: Strong Weekly Gains

In a remarkable turnaround, major U.S. stock indexes recorded their strongest weekly gains of 2024, following a two-week surge in market volatility. The NASDAQ led the charge with a surge of more than 5%, while the S&P 500 and the Dow followed suit with impressive gains of 4% and 3% respectively. This robust performance was underpinned by a trifecta of positive factors: encouraging inflation data, strong retail sales, and improved consumer sentiment. The market's ability to bounce back so decisively demonstrates its resilience in the face of recent uncertainties.

2. Inflation Moderation

Inflation, a key concern for both investors and policymakers, showed signs of cooling off. The Consumer Price Index (CPI) for July increased by 2.9% compared to the same month a year earlier, marking the first time it has slipped below 3.0% since early 2021. Complementing this, the Producer Price Index (PPI) rose by 2.2%, coming in better than forecasted. These figures have reinforced expectations for an interest-rate cut in the coming month, potentially signaling a shift in monetary policy. The moderation in inflation rates suggests that the Federal Reserve's efforts to control price increases may be bearing fruit, without tipping the economy into recession.

3. Retail Rebound

Recent concerns about the prospects of a recession have been somewhat alleviated by the latest report on U.S. retail sales. July saw a month-over-month sales gain of 1.0%, significantly outpacing economists' consensus forecast of around 0.4%. This robust consumer spending is a key driver of economic growth and suggests that despite inflationary pressures, Americans are still opening their wallets. Further bolstering this positive outlook, new claims for unemployment benefits fell relative to the previous week, indicating a resilient job market. These indicators paint a picture of an economy that, while facing challenges, continues to show significant strength.

4. Sentiment Comeback

After months of decline, U.S. consumer sentiment finally saw an uptick. The University of Michigan's Consumer Sentiment Index rose for the first time in six months, with August's preliminary reading of 67.8 exceeding most economists' expectations. While this is an encouraging sign, it's worth noting that this figure still remains well below the recent high of 79.6 recorded in February. Interestingly, consumers' expectations of inflation over the next year remained at their lowest level since December 2020, suggesting that the public believes the worst of the inflationary pressures may be behind us. This gradual recovery in consumer optimism could be a harbinger of increased spending and economic activity in the coming months.

5. Gold Glitters

In the commodities market, gold continued its impressive run, pushing record levels higher for the third consecutive week. The precious metal topped the psychologically significant $2,500-per-ounce level on Friday, with the afternoon price hovering around $2,545. This represents a year-to-date increase of more than 20%, underscoring gold's status as a safe-haven asset during times of economic uncertainty. The continued strength in gold prices may indicate that despite positive economic indicators, investors are still hedging against potential risks in the global economy.

6. Earnings Scorecard

As the quarterly earnings season nears its conclusion, the overall picture for corporate America looks increasingly positive. According to FactSet, analysts now expect S&P 500 companies to post a 10.9% second-quarter earnings increase compared to the same quarter a year earlier. While this figure is slightly down from expectations a couple of weeks ago, it significantly outpaces the 8.9% forecast that prevailed at the start of the earnings season in early July. This upward revision in earnings expectations suggests that companies have generally been able to navigate the challenging economic environment better than initially anticipated.

7. Tech Rebound

The technology sector, often a bellwether for broader market trends, staged a impressive comeback. After pulling the broader stock market lower in the previous week's sell-off, tech stocks emerged as the leaders in the latest week's sharply positive results. The tech sector posted an average gain of 7.6%, playing a significant role in the NASDAQ's outperformance of both the S&P 500 and the Dow. This resurgence in tech stocks underscores the sector's continued importance as a driver of overall market performance and investor sentiment.

8. Fed's Summer Agenda

As we look ahead, investors and economists are turning their attention to the picturesque Rocky Mountain town of Jackson Hole, Wyoming. It is here that the U.S. Federal Reserve will hold its annual three-day economic policy symposium, beginning Thursday, August 22. This event is always closely watched by market participants, but this year's symposium takes on added significance given the current economic backdrop. Fed Chair Jerome Powell is among the featured speakers, with an address scheduled for Friday. Market observers will be parsing every word for clues about the future direction of monetary policy, particularly regarding potential interest rate cuts and the Fed's view on inflation and economic growth.

Looking Ahead

As we move into the final days of August, investors should keep a close eye on several key factors. The Fed's Jackson Hole symposium will undoubtedly be the focal point, potentially providing crucial insights into the central bank's thinking on monetary policy. Any late-season earnings reports could still impact sector or market-wide sentiment, particularly if they deviate significantly from expectations. Ongoing developments in inflation and consumer spending data will also be critical, as they could influence both Fed policy and market performance.

In conclusion, this report highlights a notable shift in market dynamics, with strong performances across major indexes, moderating inflation, and improving consumer sentiment. However, as always, investors should remain vigilant. The interplay between economic data, corporate performance, and monetary policy continues to create a complex environment. As such, it remains crucial for investors to consider their personal financial goals and risk tolerance when making investment decisions in this evolving landscape.