Weekly review
The Dow Jones Industrial Average managed to secure a modest gain over the past week, whereas the S&P 500 and Nasdaq experienced slight declines. The initial part of the week was characterized by relative quiet in terms of market-shaping events, coupled with somewhat subdued market participation. However, the latter half of the week featured several noteworthy events that culminated in a quarterly options and futures expiration day on Friday. Notably, both the S&P 500 and Nasdaq dipped below their respective 50-day moving averages. Despite being on track for a positive week, the major indices saw a retreat on Friday, ending the week on a somewhat lower note. Interestingly, among the 11 sectors of the S&P 500, eight managed to finish with gains. However, the heavyweight information technology sector took a hit, declining by 2.2%. Within the tech sector, Apple (AAPL) faced challenges, dropping by 1.8% during the week amid ongoing scrutiny in China and following its product event unveiling the iPhone 15. Additionally, Adobe (ADBE) struggled, falling by 5.6% following disappointing fiscal Q4 guidance. The semiconductor sector also grappled with weakness, possibly stemming from Arm's (ARM) successful IPO on Thursday and reports that Taiwan Semiconductor Manufacturing Co. (TSM) was delaying chip equipment shipments. Consequently, the PHLX Semiconductor Index slipped by 2.5%. Netflix (NFLX), despite its strong performance this year, experienced a notable drop of 10.4% following its disclosure that its ad business does not yet significantly contribute to its overall revenue. The combined impact of losses in large-cap stocks weighed on index performance. The Vanguard Mega Growth ETF (MGK) declined by 0.8%, and the market-cap weighted S&P 500 fell by 0.2%. In contrast, the Invesco S&P 500 Equal Weight ETF (RSP) experienced a more modest decline of 0.1%. Several corporate developments also influenced selling activity. Airlines like Spirit Airlines (SAVE), Frontier Group (ULCC), Delta Air Lines (DAL), and American Airlines (AAL) issued warnings regarding their Q3 outlooks, citing rising fuel costs as a contributing factor. Furthermore, the United Auto Workers initiated targeted strikes at three manufacturing plants, one for each of the Big Three automakers, due to the failure to reach a new contract agreement. Nevertheless, Ford (F), Stellantis (STLA), and General Motors (GM) closed the week with gains of 2.5%, 5.6%, and 3.0%, respectively.
Amidst these developments, market participants closely examined a slew of economic releases. Chief among them was the August Consumer Price Index (CPI) report, which revealed a robust 0.6% increase in total CPI, in line with expectations. Core CPI, which excludes food and energy, rose by 0.3%, slightly surpassing the 0.2% consensus. Notably, year-over-year figures showed total CPI at 3.7% (versus 3.2% in July) and core CPI at 4.3% (versus 4.7% in July). The key takeaway from this report is that core inflation, a metric closely monitored by the Federal Reserve, continues to show improvement on a year-over-year basis. However, it remains notably above the Fed's 2.0% target, indicating a persistent inflationary trend. While this might not necessarily prompt the Fed to further raise interest rates at this point, it does reinforce the Fed's inclination to maintain a "higher for longer" approach. Treasury markets responded reasonably to this week's inflation data, which lent support to stocks. Yields did rise, but the increases were not characterized by panic. The 2-year note yield climbed by seven basis points to 5.04%, while the 10-year note yield also increased by seven basis points, reaching 4.33%. Oil prices remained a prominent focus throughout the week, with WTI crude oil futures surging by 4.2% to reach $91.00 per barrel. Looking ahead, the upcoming week will see the Federal Reserve meeting with a policy decision announcement scheduled for 2:00 p.m. ET on Wednesday. Market participants are not anticipating a rate hike and will instead focus on the updated Summary of Economic Projections and the tone set by Fed Chair Powell during his press conference.
On Monday, the week commenced with the major indices posting gains, although trading volume at the NYSE was relatively light. Both the S&P 500 and Nasdaq closed near their day's highest points, placing them above their 50-day moving averages. The market received a significant boost from the strength exhibited by some mega-cap stocks. The Nasdaq saw a notable 1.1% climb, and the market-cap weighted S&P 500 rose by 0.7%. The Invesco S&P 500 Equal Weight ETF (RSP) also managed to secure a 0.2% gain. A standout performer for the day was Tesla (TSLA), surging by 10% after receiving an upgrade from Morgan Stanley, shifting from Equal Weight to Overweight. Although market breadth leaned towards the positive side, it did so modestly, with advancers slightly outnumbering decliners by an 11-to-10 margin at the NYSE and the Nasdaq. The day's trading reflected a lack of strong conviction, potentially in anticipation of a busy week of economic data, including the August Consumer Price Index, August Producer Price Index, and Retail Sales report.
Tuesday's session started with a positive undercurrent despite a mixed performance among the major indices. Early on, the S&P 500 and Nasdaq displayed some weakness, albeit with relatively minor losses, placing them below their 50-day moving averages. Meanwhile, the Dow Jones Industrial Average and Russell 2000 traded in positive territory, accompanied by a positive market breadth. The early lagging seen in the S&P 500 and Nasdaq was primarily attributed to weakness in the mega-cap sector and a substantial decline in Oracle (ORCL) following its earnings report and somewhat disappointing guidance. A mid-day push drove the S&P 500 briefly above its 50-day moving average, but it was unable to sustain that position, leading to increased selling activity during the afternoon session. Ultimately, the Dow Jones Industrial Average closed with a fractional loss, while the S&P 500 and Nasdaq Composite finished the day near their lowest levels. Apple (AAPL) exhibited weakness ahead of its closely-watched product event and faced a decline following the announcement of the iPhone 15 and other product updates. Additionally, rising oil prices, reaching their highest level since the previous November, added to the market's concerns. Tuesday's economic data included the August NFIB Small Business Optimism index, which declined from 91.9 to 91.3.
On Wednesday, the trading session was rather uneventful as the major indices experienced only modest gains or losses. The market saw a lack of strong conviction, with the advancing-declining line favoring decliners, resulting in choppy action during both the morning and afternoon sessions. Mega-cap stocks steered the market's direction, contributing to the overall mixed performance. Wednesday morning's Consumer Price Index (CPI) report indicated that core inflation, which is closely monitored by the Federal Reserve, continued to show year-over-year improvement. However, it remained well above the Fed's 2.0% target, suggesting a persistent quality that may not prompt the Fed to further raise interest rates at this juncture but would likely keep the central bank in a "higher for longer" stance. The Treasury market initially reacted to the data with some knee-jerk selling, but this quickly subsided, providing support for the stock market. The 2-year note yield briefly jumped to 5.07% after the data release but ultimately settled at 4.99%, one basis point lower than Tuesday's close. Similarly, the 10-year note yield, which had briefly reached 4.34%, ended two basis points lower than Tuesday, at 4.25%. Airline stocks faced notable weakness on Wednesday, primarily due to warnings from Spirit Airlines (SAVE), Frontier Group (ULCC), and American Airlines (AAL) regarding their Q3 outlooks, partially attributed to rising fuel costs. Consequently, the U.S. Global Jets ETF (JETS) dropped by 2.7%. Reviewing Wednesday's economic data, the August CPI showed a 0.6% month-over-month increase, in line with expectations, with rising gasoline prices accounting for over half of the rise. Core CPI, which excludes food and energy, experienced a stronger-than-expected 0.3% month-over-month increase. On a year-over-year basis, total CPI rose by 3.7%, compared to 3.2% in July, while core CPI increased by 4.3%, down from 4.7% in July.
Thursday saw a strong performance in the stock market following a relatively quiet start to the week in terms of market-moving events. All major indices closed with decent gains, and both the S&P 500 and Nasdaq Composite surpassed their 50-day moving averages. Several factors contributed to Thursday's positive bias. There was speculation surrounding the Arm Holdings (ARM) IPO, which opened for trading at $56.10. Additionally, central bank news and economic data supported a more optimistic economic outlook. The European Central Bank (ECB) raised its key interest rates by 25 basis points, hinting that it might have completed its rate hikes, potentially indicating a "dovish hike." The People's Bank of China (PBOC) announced a 25 basis point cut in the required reserve ratio, effective September 15, for banks not currently maintaining a 5% reserve ratio. Furthermore, August retail sales exceeded expectations with a 0.6% increase, and the August Producer Price Index (PPI) reported an in-line core reading and year-over-year increases of 1.6% for total PPI and 2.2% for core PPI. Initial jobless claims for the week ending September 9 were notably low at 220,000, indicative of a tight labor market that supports continued consumer spending. Treasuries exhibited a relatively calm response to the economic data, further bolstering the stock market's performance.
On Friday, the stock market experienced notable declines, coinciding with the quarterly options and futures expiration day. The S&P 500, Nasdaq, and Russell 2000 erased their gains for the week, while the Dow Jones Industrial Average managed only a modest 0.2% weekly gain. All major indices closed near their session lows, with the S&P 500 and Nasdaq slipping below their 50-day moving averages. The decline was widespread, with many stocks participating in the downside moves. However, the influence of mega-cap and growth stocks had an outsized impact on the performance of the indices. Weakness in semiconductor stocks also weighed heavily on index performance, with this weakness following Arm's successful IPO the previous day and a Reuters report indicating that Taiwan Semiconductor Manufacturing Co. (TSM) was delaying chip equipment shipments. Rising market interest rates and oil prices contributed to the negative sentiment. Adobe (ADBE) was among the top laggards after providing underwhelming fiscal Q4 guidance. Notably, General Motors (GM) and Stellantis (STLA) managed to register gains despite failing to reach agreements with the United Auto Workers (UAW), resulting in targeted strikes at three manufacturing plants, one for each of the automakers. Meanwhile, Ford (F) experienced a small decline. In terms of economic data released on Friday, August Import Prices increased by 0.5%, with the prior figure revised to 0.1% from 0.4%. August Import Prices, excluding oil, declined by -0.1%, with the prior number revised to -0.1% from 0.0%. August Export Prices rose by 1.3%, with the prior figure revised to 0.5% from 0.7%. August Export Prices, excluding agriculture, increased by 1.7%. September's Empire State Manufacturing came in at 1.9, surpassing the consensus of -10.0, with the prior figure at -19.0. August Industrial Production rose by 0.4%, surpassing the consensus of 0.2%, with the prior number revised to 0.7% from 1.0%. August Capacity Utilization reached 79.7%, exceeding the consensus of 79.3%, with the prior figure revised to 79.5% from 79.3%. September's University of Michigan Consumer Sentiment, in its preliminary reading, was 67.7, falling short of the consensus of 69.4, with the prior figure at 69.5. The key takeaway from the economic reports is that motor vehicle assemblies weakened ahead of a United Auto Workers (UAW) strike, which is expected to disrupt auto manufacturing capabilities in September. Additionally, consumer inflation expectations decreased, a development the Federal Reserve is likely to view positively, although concerns remain about the impact of rising gas prices on these expectations.
In the latest market data, the Dow Jones Industrial Average closed at 34,619, reflecting a marginal 0.1% increase for the week and a 4.4% gain year-to-date. The NASDAQ ended at 13,708, experiencing a 0.4% decrease for the week but boasting an impressive 31.0% year-to-date growth. The TSX closed at 20,536, marking a 2.3% gain for the week and a 5.9% increase year-to-date. The S&P 500 Index concluded at 4,450, with a slight 0.2% dip for the week, yet it has achieved a solid 15.9% year-to-date growth. The MSCI EAFE* index settled at 2,100, showing a notable 1.2% weekly increase and an 8.0% gain year-to-date. In the bond market, bonds closed at $95.51, reflecting a modest 0.3% decline for the week, but they have gained 0.8% year-to-date. Canada Investment Grade Bonds experienced a marginal 0.2% dip for the week, with a 0.4% year-to-date increase. The 10-year Government of Canada (GoC) Yield stood at 3.73%, representing a 0.1% weekly increase and a 0.4% year-to-date growth. Meanwhile, the 10-year Treasury Yield reached 4.33%, marking a 0.1% weekly rise and a 0.5% year-to-date increase. Oil prices per barrel closed at $91.10, showcasing a substantial 4.1% weekly gain and an impressive 13.5% increase year-to-date. Lastly, the Canadian/USD Exchange rate was at $0.74, with an 0.8% weekly rise and a 0.2% year-to-date growth.
Previous update:
During this abbreviated trading week, the stock market experienced widespread declines, influenced by several key factors. Notably, the performance of stocks was predominantly shaped by developments related to Apple (AAPL), shifts in market interest rates, and fluctuations in oil prices. It's important to mention that some trading sessions during the week saw lower-than-usual trading volumes, as many market participants remained in vacation mode following the Labor Day weekend.
Apple (AAPL) faced a substantial setback, with its stock price plummeting by 6.0% during the week. This decline followed reports suggesting that Chinese officials were prohibited from using Apple devices, which in turn led to a sell-off in semiconductor stocks, as reflected in the 3.2% drop in the PHLX Semiconductor Index.
However, the implications extend beyond Apple and the semiconductor sector. Market concerns revolved around the possibility that China's actions against a prominent company like Apple, with a significant and positive business relationship in China, could set a precedent for other U.S. companies operating in the Chinese market.
Another factor impacting the stock market was the notable surge in oil prices, which triggered concerns about inflation expectations and potential pressures on consumer spending. This understanding played a role in the broader stock market sell-off, with WTI crude oil futures surging by 2.2% to $87.47 per barrel. This increase followed news that Saudi Arabia and Russia intended to extend their voluntary oil production cuts, contributing to the upward pressure on oil prices.
Additionally, Treasury yields experienced an upward trajectory throughout the week in response to various economic data releases. The 2-year note yield climbed by nine basis points to 4.97%, while the 10-year note yield also increased by nine basis points to 4.26%.
Economic data, such as the ISM Services PMI, indicated an acceleration in activity within the services sector for August. However, it also revealed an uptick in prices, which may raise concerns at the Federal Reserve regarding the potential need for prolonged higher interest rates.
Further economic reports disclosed that initial jobless claims for the week ending September 2 were at their lowest level since February, standing at 216,000. Concurrently, Q2 productivity was revised slightly lower to 3.5% from 3.7%, while unit labor costs were revised upward to 2.2% from 1.6%.
In terms of sector performance within the S&P 500, only two sectors, namely energy (+1.4%) and utilities (+0.3%), posted gains. Conversely, the industrials (-2.9%), information technology (-2.3%), and materials (-2.5%) sectors all experienced declines exceeding 2.0%.
Tuesday marked the beginning of the shortened trading week, which started on a somewhat subdued note following significant gains in the previous week. Among the major indices, the Russell 2000 took the lead in losses, declining by 2.1%, while the Nasdaq closed with a modest 0.1% loss. The S&P 500 spent most of the session above the 4,500 level, only to dip slightly below it late in the afternoon. Notably, mega-cap stocks displayed relative strength, indicating an overall risk-off sentiment in the market, with Tesla (TSLA) standing out with nearly a 5.0% increase. The market downturn was fueled by an uptick in market interest rates and concerns about global economic growth. This unease was exacerbated by disappointing PMI readings from overseas and rising oil prices. The 2-year note yield rose by eight basis points to 4.96%, while the 10-year note yield increased by ten basis points to 4.27%. The surge in oil prices, with WTI crude oil futures rising by 1.2% to $86.55 per barrel, raised worries about inflation expectations and potential pressures on consumer spending, particularly following news that Saudi Arabia and Russia intended to extend their voluntary oil production cuts. Tuesday's economic data was primarily focused on factory orders for July, which saw a 2.1% month-over-month decline, slightly better than the expected 2.4% decrease. Excluding transportation, factory orders increased by 0.8% month-over-month, signaling strength in this component. Shipments of manufactured goods also rose by 0.5% month-over-month.
Moving on to Wednesday's trading, the day began with mixed sentiment and limited conviction. The major indices hovered around their previous day's closing levels. However, a decline in market rates following the release of the ISM Services PMI at 10:00 a.m. ET led to a broader market retreat. The PMI increased to 54.5% from 52.7%, and the Prices Index rose to 58.9% from 56.8%, supporting the belief that the Federal Reserve may need to maintain higher interest rates for a longer duration. The 2-year note yield, most sensitive to changes in the fed funds rate, closed at 5.04%, up eight basis points from the previous day, while the 10-year note yield settled at 4.29%. Rising oil prices, up to $87.57 per barrel, added to the negative sentiment and raised concerns about discretionary spending, exacerbated by elevated gas prices. Furthermore, several airlines expressed caution regarding increasing jet fuel costs. The major indices managed to recover slightly from their intraday lows but still concluded the day with notable losses. The S&P 500 closed below its 50-day moving average at 4,475. Apple (AAPL) experienced a significant drop due to negative headlines, including China's ban on government officials using Apple devices and the EU Commission's designation of Apple as one of six "gatekeepers," subjecting it to increased regulatory scrutiny. In terms of economic data on Wednesday, the Weekly MBA Mortgage Applications Index declined by 2.9%, while the July Trade Balance showed a deficit of -$65.0 billion. The S&P Global US Services PMI for August was 50.5, and the ISM Non-Manufacturing Index for the same month was 54.5%, signaling an acceleration in services sector activity but also an increase in prices, which could impact the Fed's considerations regarding prolonged higher interest rates.
Thursday's trading session witnessed a lack of conviction among buyers, with the Dow Jones Industrial Average managing a slight gain while the S&P 500, Nasdaq Composite, and Russell 2000 all saw declines of 0.3%, 0.9%, and 1.0%, respectively. Apple (AAPL) continued to experience significant declines, casting a shadow over the broader market. This ongoing weakness followed a Bloomberg report indicating that China was planning to expand its iPhone ban to state and federal agencies, subsequently driving semiconductor stocks lower and resulting in a 2.0% loss in the PHLX Semiconductor Index. Market participants closely monitored developments in the Treasury market, which experienced turbulence. The 2-year note yield, initially at 4.99%, briefly spiked to 5.05% following economic data but ultimately settled at 4.96%. Similarly, the 10-year note yield, starting at 4.27%, briefly hit 4.31% after the data release before settling at 4.26%. Regarding Thursday's economic data, the Weekly Initial Claims showed 216,000 claims, lower than the consensus of 233,000. This marked the lowest level since February and is positive news for the economy. However, from a monetary policy perspective, it suggests that the Federal Reserve may maintain a more restrictive policy stance for an extended period. Additionally, Q2 Productivity was revised to 3.5% from the consensus of 3.7%, while Q2 Unit Labor Costs were revised to 2.2% from the consensus of 1.6%. Although unit labor costs appeared disappointing at the headline level, they still indicate a disinflationary trend compared to the previous year.
On Friday, the three major indices closed with modest gains, though slightly below their daily highs. Earlier in the day, the S&P 500 and Nasdaq approached their respective 50-day moving averages, which had acted as areas of resistance over the past four weeks. Apple (AAPL) played a significant role in driving index-level price action, with the stock briefly rising 1.5% before closing moderately higher than the previous day. Other mega-cap stocks exhibited relative outperformance, providing support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) rose by 0.3%, and the Invesco S&P 500 Equal Weight ETF (RSP) increased by 0.1%. Eight out of the 11 S&P 500 sectors closed in positive territory, with energy leading the way with a 1.0% gain, mirroring the rise in oil prices to $87.47 per barrel, up 0.6%. On the flip side, the real estate sector recorded the largest decline, down 0.6%. Rising interest rates had exerted pressure on the stock market throughout the week, making the relatively muted Friday's action a welcome development. The economic data on Friday was limited to wholesale inventories for July, which fell by 0.2% against a consensus expectation of a 0.1% decline. This followed a revised 0.7% drop in June. Additionally, July's consumer credit increased by $10.4 billion, falling short of the consensus estimate of $15.8 billion, following a revised increase of $14.0 billion in June, down from the initially reported $17.9 billion.
The TSX closed the week at 20,075 points, reflecting a decline of 2.3% for the week but maintaining a positive year-to-date (YTD) performance of 3.6%. In the United States, the Dow Jones Industrial Average concluded the week at 34,577 points, registering a 0.7% decline over the week but still showing a YTD gain of 4.3%. Similarly, the S&P 500 Index closed at 4,457 points, marking a 1.3% decrease for the week while boasting a strong YTD performance of 16.1%. On the technology front, the NASDAQ closed at 13,762 points, reflecting a 1.9% decline for the week but maintaining an impressive YTD gain of 31.5%. In the global markets, the MSCI EAFE index settled at 2,077 points, down 1.3% for the week while showing a YTD increase of 6.9%. In the fixed-income realm, the 10-year Treasury Yield stood at 4.26%, representing a marginal 0.1% uptick for the week and a YTD increase of 0.4%, while the 10-year GoC Yield was at 3.67%, mirroring the 0.1% weekly increase and YTD growth of 0.4%. Oil prices per barrel reached $87.28, marking a notable 2.0% increase for the week and a strong YTD gain of 8.7%. Bonds closed at $95.78, experiencing a modest 0.3% decline for the week but maintaining a YTD increase of 0.8%. In the realm of Canadian Investment Grade Bonds, there was a slight weekly decline of 0.4%, but they have shown a YTD gain of 0.7%. The Canadian/USD Exchange rate stood at $0.73, recording a 0.4% decrease for the week and a YTD decline of -0.6%.
Previous update:
It was a reasonably robust week for the stock market, resulting in moderate gains for major indices. Although there was some relatively weaker price action towards the end of the week, significant gains in the first half of the week more than compensated for it. When including the previous Friday, the major indices marked four consecutive positive sessions, reaching this streak's peak by Wednesday's close. This week's upward movements saw the S&P 500 regain its position above the 50-day moving average.
These widespread gains reflected the readiness of market participants to purchase during market dips, partly supported by a substantial decline in market interest rates. In general, sellers didn't appear overly confident in their actions. Many of this week's sessions had below-average trading volumes, which is customary for the final week of August leading up to the Labor Day weekend.
Mega-cap stocks took the lead, benefiting from the decline in market interest rates. The Vanguard Mega Cap Growth ETF (MGK) climbed by 3.6% over the week, while the Invesco S&P 500 Equal Weight ETF (RSP) recorded a 2.3% gain.
In the bond market, the 2-year note yield dropped by 17 basis points to 4.88% during the week, and the 10-year note yield decreased by seven basis points to 4.17%. These adjustments were in response to a set of economic data that wasn't particularly bad, yet failed to impress. Interestingly, the market saw slightly weaker-than-anticipated economic reports positively, as they reinforced the notion that the Federal Reserve may delay any rate hikes.
The economic calendar for the week featured several key releases, including the August Consumer Confidence Index, July JOLTS - Job Openings Report, the second estimate for Q2 GDP, July Personal Income and Spending, the August ISM Manufacturing Index, and the August Employment Situation Report.
Notably, there was a significant but somewhat unnoticed shift in oil prices during the week. WTI crude oil futures surged by 2.3% on Friday, culminating in a 7.8% gain for the week, reaching $85.55 per barrel. This surge in oil prices bolstered the S&P 500 energy sector, which saw a 3.8% increase throughout the week, although it also raised concerns about persistent inflation.
Excluding the energy sector, sectors such as information technology (+4.4%), consumer discretionary (+3.0%), and communication services (+3.5%) experienced substantial gains. In contrast, countercyclical sectors like utilities (-1.7%) and consumer staples (-0.3%) were the only ones to conclude the week with losses.
In terms of corporate earnings, Salesforce (CRM) stood out positively among Dow components following its quarterly results and guidance. However, retailers Dollar General (DG) and Five Below (FIVE) saw their stock prices decline after reporting quarterly results with guidance below consensus expectations. Conversely, Best Buy (BBY) and lululemon athletica (LULU) witnessed stock price increases following their earnings reports.
As a reminder, both equity and bond markets were closed on Monday in observance of Labor Day, marking the end of a week characterized by market resilience and noteworthy developments in various sectors and asset classes.
On Monday, the stock market kicked off the last week of August with a positive tone. Major indices closed near their day's highs, although trading volume at the NYSE was exceptionally light. This positive sentiment was partially driven by a carryover of upward momentum from Friday, which had seen a rebound effort following some initial selling in response to Fed Chair Powell's speech at the Jackson Hole Symposium. While mega-cap stocks exhibited some volatile price swings, the major indices managed to stay out of negative territory due to widespread buying across the market. Notably, NVIDIA (NVDA) started the day down by as much as 2.5% but ended with a gain of 1.8%. Exchange-traded funds (ETFs) tracking market segments performed well, with the Vanguard Mega Cap Growth ETF (MGK) gaining 0.7%, the Invesco S&P 500 Equal Weight ETF (RSP) rising by 0.8%, and the market-cap weighted S&P 500 increasing by 0.6%. 3M (MMM) stood out as a notable winner, leading the Dow Jones Industrial Average and the S&P 500 industrials sector (+0.8%). This surge followed reports indicating that the company was nearing a $5.5 billion settlement in a military earplugs case. On the mergers and acquisitions (M&A) front, notable activities included the FTC's motion to withdraw a matter related to Amgen's (AMGN) bid to acquire Horizon Therapeutics (HZNP), Danaher's (DHR) acquisition of Abcam (ABCM) for $24.00 per share in cash, Kimco Realty's (KIM) acquisition of RPT Realty (RPT) in an all-stock transaction, and KSL Capital Partners' acquisition of Hersha Hospitality Trust (HT) at a roughly 60% premium of $10.00 per share in cash. There were no significant U.S. economic data releases on Monday.
On Tuesday, the positive momentum continued in the stock market with light trading volume. A significant drop in market interest rates served as a favorable catalyst for stocks. The S&P 500 surpassed its 50-day moving average (4,460) shortly after the market opened and closed just below the 4,500 level. All major indices settled near their daily highs. The catalyst for this positivity was a sharp decline in Treasury yields, triggered by the release of the July JOLTS - Job Openings Report and the August Consumer Confidence Index at 10:00 a.m. ET. Both reports came in weaker than expected, which was seen as a positive sign by the market in relation to Federal Reserve policy. Mega-cap stocks and other growth-oriented stocks led the upward charge, reacting positively to the drop in interest rates. Notably, the Vanguard Mega Cap Growth ETF (MGK) surged by 2.0%, and the Russell 3000 Growth Index gained 1.9%. In addition to the favorable rate environment, the consumer discretionary sector received a boost from Best Buy (BBY), which reported positive earnings results and outlook.
In terms of economic data on Tuesday, the June FHFA Housing Price Index showed a 0.3% increase (compared to a prior 0.7% increase), while the June S&P Case-Shiller Home Price Index displayed a year-over-year decline of -1.2% (compared to expectations of a 0.9% increase). The August Consumer Confidence Index came in at 106.1 (below expectations of 116.0), reflecting a decline in consumer optimism about employment conditions. Additionally, the July JOLTS - Job Openings report showed 8.827 million job openings, missing expectations. These developments marked another day of positive stock market performance, driven by a favorable interest rate environment and economic data that was perceived as supportive of Federal Reserve policies.
On Wednesday, the stock market marked its fourth consecutive winning session, although trading remained relatively light. The gains observed during the day were somewhat subdued compared to previous sessions. Nevertheless, the S&P 500, closing above the 4,500 level, and the Nasdaq Composite ended the day near their highs, mainly supported by the mega-cap sector. Early in the day, an initial decline in market interest rates, influenced by weaker-than-expected economic data, provided an early boost. However, Treasury yields gradually rebounded as the session progressed. The relative strength of mega-cap stocks played a crucial role in driving gains across indices. The Vanguard Mega Cap Growth ETF (MGK) registered a 0.7% increase, while the Invesco S&P 500 Equal Weight ETF (RSP) rose by 0.3%. The market-cap weighted S&P 500 closed up 0.4%. Despite some favorable earnings results, Ambarella (AMBA) experienced a significant decline due to its Q3 revenue guidance falling well below consensus expectations. HP Inc. (HPQ) was another notable loser, with earnings in line with expectations but with a moderated outlook for Q4, attributed to aggressive pricing in the PC market, slow demand in China, and softening enterprise demand. On the positive side, Hewlett Packard Enterprise (HPE) received a favorable response after beating earnings estimates. In terms of economic data for Wednesday, the Weekly MBA Mortgage Applications increased by 2.3%, August ADP Employment Change stood at 177K (below the consensus of 195K), Advanced International Trade in Goods for July was -$91.2 billion, Advanced Retail Inventories for July rose by 0.3%, and Advanced Wholesale Inventories for July decreased by -0.1%. The Second Estimate for Q2 GDP was 2.1%, and the Q2 GDP Deflator was 2.0%, both slightly below consensus expectations. Lastly, July Pending Home Sales increased by 0.9%.
On Thursday, the market's winning streak came to an end, with initial optimism slowly fading, leading to a mixed performance among major indices. The S&P 500 and Dow Jones Industrial Average closed with losses near their daily lows, while the Nasdaq managed to secure a modest gain. The subdued price action was attributed to a lack of conviction among traders. The day saw more significant price movements in individual stocks with specific catalysts. Retailers Dollar General (DG) and Five Below (FIVE) faced declines after reporting quarterly results that included guidance below consensus expectations. In contrast, CrowdStrike (CRWD) and Dow component Salesforce (CRM) recorded notable gains following their earnings reports. Mega-cap stocks showed relative strength, providing some support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) achieved a marginal 0.1% gain, whereas the Invesco S&P 500 Equal Weight ETF (RSP) declined by 0.4%, and the market-cap weighted S&P 500 fell by 0.2%. Despite the market's mixed performance, investors seemed to be digesting generally favorable economic data, which affirmed that the U.S. economy was not experiencing a hard landing.
Key economic data for Thursday included weekly Initial Claims at 175K (below the consensus of 235K), weekly Continuing Claims at 160K, July Personal Income at 0.3%, July Personal Spending at 0.8%, July PCE Prices at 0.2%, and July PCE Prices - Core at 0.2%. The year-over-year inflation readings displayed a slight uptick, catching the attention of the Federal Reserve as a potential reason to hold off on rate cuts. Additionally, the August Chicago PMI came in at 48.7, exceeding the consensus of 45.0 and reflecting economic conditions not indicative of a hard landing.
On Friday, the stock market concluded the first day of September with a mixed performance. The three primary indices closed with only marginal gains or losses, with the Russell 2000 outperforming with a 1.1% increase. The S&P 500 maintained its position above the 4,500 level, dipping to 4,501 at its lowest point. Several factors acted as headwinds for the stock market, including an increase in market interest rates, comments from Cleveland Fed President Mester (a 2024 FOMC voter) stating that inflation remains excessively high, and a notable surge in oil prices, reaching $85.55 per barrel, a 2.3% increase. Throughout the week, the 2-year note yield rose by two basis points, while the 10-year note yield increased by eight basis points. However, over the course of the week, the 2-year note yield fell by 17 basis points, and the 10-year note yield decreased by seven.
Mega-cap and growth stocks experienced relatively subdued performance, reacting to the rise in interest rates and cooling off after a stronger showing earlier in the week. The Vanguard Mega Cap Growth closed flat, while the Invesco S&P 500 Equal Weight ETF (RSP) gained 0.4%, and the market-cap weighted S&P 500 rose by 0.2%. In contrast, the Russell 3000 Value Index increased by 0.6%, surpassing the 0.1% gain in the Russell 3000 Growth Index. Reviewing Friday's economic data, the August Nonfarm Payrolls came in at 187K, exceeding the consensus of 175K, with a revision to July's figure from 187K to 157K. The August Nonfarm Private Payrolls stood at 179K, surpassing the consensus of 160K, with a July revision from 172K to 155K. The August Average Hourly Earnings was 0.2%, slightly below the consensus of 0.3%, while July's figure was 0.4%. The August Unemployment Rate was 3.8%, higher than the consensus of 3.6%, with a July rate of 3.5%. Additionally, the August Average Workweek was 34.4, exceeding the consensus of 34.3, while July's figure was 34.3. Overall, these figures were viewed as a Goldilocks report, aligning with the market's belief that the Federal Reserve won't be raising rates again.
Other economic data included the August S&P Global US Manufacturing PMI - Final at 47.9, an improvement from July's 47.0. July Construction Spending was 0.7%, surpassing the consensus of 0.6%, with a revision of June's figure from 0.5% to 0.6%. The August ISM Manufacturing Index was 47.6%, exceeding the consensus of 46.7%, and an improvement from July's 46.4%. These data points indicated that manufacturing demand remained soft, yet conditions in the manufacturing sector, while slow, appeared to be stabilizing.
The Dow Jones Industrial Average closed at 34,838, marking a weekly gain of 1.4% and a year-to-date increase of 5.1%. The NASDAQ finished at 14,032, recording a 3.2% weekly rise and an impressive 34.1% gain for the year. The TSX index reached 20,543, showing a strong 3.6% weekly increase and a year-to-date growth of 6.0%. The S&P 500 Index stood at 4,516, indicating a 2.5% weekly uptick and a substantial 17.6% gain for the year. The MSCI EAFE reached 2,109, with a weekly rise of 2.7% and a year-to-date growth of 8.5%. Canada Investment Grade Bonds experienced a 0.9% increase, contributing to a year-to-date rise of 1.1%. The 10-year GoC Yield settled at 3.56%, showing a slight decrease of 0.1% for the week and a 0.3% rise for the year. Similarly, the 10-year Treasury Yield was at 4.18%, with a weekly decline of 0.1% and a year-to-date increase of 0.3%. Oil prices per barrel stood at $85.92, surging by 7.6% for the week and maintaining a 7.1% gain for the year. Bonds reached $96.09, reflecting a modest 0.2% weekly increase and a year-to-date growth of 1.6%. The Canadian/USD Exchange rate was at $0.74, marking a 0.4% weekly rise but a slight year-to-date decrease of -0.2%.
Previous update:
It was a generally positive week for the prominent mega-cap companies, while the broader market displayed relatively subdued performance. Specifically, the S&P 500, which is weighted by market capitalization, witnessed a 0.8% increase over the week, while the Invesco S&P 500 Equal-Weight ETF (RSP) experienced a marginal loss. The Russell 2000 index declined by 0.3% during the week, and the S&P Midcap 400 Index remained relatively unchanged. In contrast, the Nasdaq Composite exhibited a notable gain of 2.3%, while the Dow Jones Industrial Average encountered a slight setback of 0.4%.
This week's gains enabled both the S&P 500 and the Nasdaq Composite to break a three-week streak of losses. The trading activity throughout the week lacked consistency, featuring fluctuations amid light trading volume. Significant news items emerged during the week, including reports on July Existing Home Sales and New Home Sales, preliminary Manufacturing and Services PMI readings for August, NVIDIA's earnings report, a range of retail companies' results, and Fed Chair Powell's address at the Jackson Hole Symposium, focusing on policy matters.
To provide a summary of key points from the week:
In terms of sectors, information technology (+2.6%), consumer discretionary (+1.1%), and communication services (+1.0%) emerged as the top performers due to their inclusion of mega-cap stocks. Conversely, the energy sector (-1.4%) experienced the most significant decline, influenced by concerns about China's weakening economy, which prompted the PBOC to reduce the one-year loan prime rate and encourage financial institutions to stabilize the stock market. Additionally, reports of China planning to lower stock trading duties by 50% affected the market, resulting in a 0.6% decline in China's Shanghai Composite index on Friday and a 2.2% loss for the week. Separately, the Treasury market exhibited its own fluctuations. The 2-year note yield fluctuated between 4.92% and 5.10%, ultimately ending the week at 5.05%, reflecting a 14-basis-point increase. Similarly, the 10-year note yield varied between 4.18% and 4.35%, settling at 4.24% by the end of the week, reflecting a one-basis-point decrease. The U.S. Dollar Index rose by 0.8% throughout the week to reach 104.19.
Monday's trading session witnessed mixed performance among stocks in a session marked by light trading activity. The Nasdaq Composite outperformed, rising 1.6%, largely attributed to buy-the-dip activity in the mega-cap sector, which also helped limit losses in other areas. Although major indices initially trended lower, they rebounded around 12:00 p.m. ET without any specific news driving the improvement. A significant observation was the pullback of Treasury yields, which had been pressuring stocks and began to retreat from their highs as the stock market rebounded from its session lows. The day's conclusion saw major indices settling near their highest levels, with the S&P 500 coming close to 4,400. The index reached its peak at 4,407. Regarding yields, the 2-year note yield concluded eight basis points higher at 4.99% after reaching 5.00%, while the 10-year note yield climbed nine basis points to 4.34%, marking its highest level since 2007 after touching 4.35%. Moreover, the 30-year bond yield rose by eight basis points to 4.46%, reaching its highest level since 2011. The late afternoon rally was notably influenced by the performance of mega-cap stocks, which had already been exhibiting strength due to buy-the-dip interest and safe-haven trading. The Vanguard Mega Cap Growth ETF (MGK) gained 1.5%, whereas the Invesco S&P 500 Equal Weight ETF (RSP) ended the session flat. Within the mega-cap space, Tesla (TSLA) rose 7.3%, while NVIDIA (NVDA) surged 8.5%. NVDA's upward movement was partly influenced by HSBC raising its price target to $780 from $600 ahead of its earnings report. S&P 500 sector performance varied, with information technology (+2.3%) leading the gains, thanks to Palo Alto Networks' strong earnings results (+14.8%). The real estate sector (-0.9%), sensitive to interest rates, recorded the most significant decline. Apprehension ahead of Fed Chair Powell's speech at the Jackson Hole Symposium contributed to the Treasury market's weakness, as an article highlighted the potential need for a higher neutral rate.
Apprehensions regarding China's economic slowdown continued to limit stock performance, while the People's Bank of China reduced its one-year loan prime rate by 10 basis points to 3.45%. In related news, China's plans to reduce stock trading duties by 50% and the lack of larger cuts in the 5-year rate led to a 0.6% decline in China's Shanghai Composite on Friday.
Tuesday's trading session remained mixed with light trading activity, observing notable price fluctuations in Treasuries that influenced stock market movement. The Nasdaq's relative strength was driving gains early on, with the S&P 500 trading above 4,400 before slipping below that threshold, ultimately ending the session near its worst levels. The Dow Jones Industrial Average dropped 0.5%, the S&P 500 fell 0.3%, while the Nasdaq slightly rose by 0.1%. The weaker performance of bank stocks, particularly due to S&P downgrading several banks' credit ratings, weighed on the market. Macy's discussed weakening consumer credit conditions, which further impacted banks. Macy's stocks fell 14.1%, while Dick's Sporting Goods experienced a significant decline of 24.2% after missing earnings estimates, attributing its disappointing results to inventory shrinkage. On the positive side, Lowe's recorded gains after its quarterly report. Homebuilders outperformed the market, supported by a lean supply of homes for sale as seen in the existing home sales report for July. The S&P Homebuilder ETF (XHB) and U.S. Home Construction ETF (ITB) rose by 0.3% and 0.8% respectively. Meanwhile, the financial sector (-0.8%) faced the most substantial decline, driven by weak bank components, while the real estate sector (+0.3%) emerged as an outperformer. Treasury yields exhibited fluctuations, initially declining before edging higher after the market opened, eventually settling below their peak levels. The 2-year note yield increased by five basis points to 5.04%, while the 10-year note yield decreased by one basis point to 4.33%. The day's economic data included the existing home sales report for July, which indicated a 2.2% month-over-month decline in sales to a seasonally adjusted annual rate of 4.07 million. The report highlighted tight inventory of existing homes for sale and ongoing affordability challenges due to rising prices and mortgage rates, which act as deterrents for existing homeowners.
Wednesday's trading session showcased robust market performance, driven by declining market rates and the strength of mega-cap stocks. The major indices all concluded with gains ranging from 0.5% to 1.6%, although trading volume remained light at the NYSE. The S&P 500 successfully crossed above the 4,400 level, which previously acted as resistance. The overnight drop in market rates was triggered by weaker August PMI data from Europe. This decline continued with the release of softer Manufacturing and Services PMI readings for the US after the market opened. Consequently, the 2-year note yield fell by 11 basis points to 4.93%, while the 10-year note yield dropped 13 basis points to 4.20%. NVIDIA (NVDA) exhibited strength in the mega-cap segment, gaining 3.2% ahead of its earnings report scheduled for the close of the day. Apple (AAPL) and Microsoft (MSFT) also posted significant gains without specific news driving the movement. These increases contributed to a 1.6% rise in the Vanguard Mega Cap Growth ETF (MGK) and a 1.1% increase in the market-cap weighted S&P 500. Market internals reflected widespread buying interest beneath the index surface, with a 7-to-2 margin of advancers to decliners at the NYSE and a 2-to-1 margin at the Nasdaq. Among the S&P 500 sectors, ten out of eleven experienced gains, led by information technology (+1.9%) which benefited from its mega-cap constituents. Communication services (+1.9%) was another top performer, bolstered by a substantial increase in Netflix (NFLX) following supportive comments from Oppenheimer. The energy sector (-0.3%) was the sole sector in negative territory. Earnings reports from retailers dominated the landscape since the previous day's close. Foot Locker (FL) and Peloton (PTON) faced declines of 28.3% and 22.6%, respectively, following their earnings results and guidance. In contrast, Abercrombie & Fitch (ANF) registered an impressive 23.5% gain after surpassing earnings estimates and revising guidance upwards.
In terms of economic data released on Wednesday:
Notably, the new home sales data indicated that the sales surge, measured by signed contracts, primarily occurred in more moderately priced homes. This trend was driven by challenges such as elevated building costs affecting the supply of lower-priced homes, compounded by increased mortgage rates which impacted affordability across the market spectrum.
Thursday's trading session culminated in significant losses for the major indices, propelled by NVIDIA's (NVDA) impressive earnings report that included better-than-anticipated Q3 guidance and a new $25 billion share buyback program. Although the day commenced with many stocks building upon the previous day's gains, mega-cap stocks quickly reversed course, failing to regain their early momentum and thus exerting substantial downward pressure on the broader market. Ultimately, major indices closed near their daily lows, with the S&P 500 slipping below the 4,400 mark. The unexpected downturn in price action following NVIDIA's earnings release surprised many participants and subsequently acted as a catalyst for increased selling activity. The Vanguard Mega Cap Growth ETF (MGK), which had enjoyed an upswing of up to 0.9% during the day, suffered a 2.0% loss. The Invesco S&P 500 Equal Weight ETF (RSP), which had surged by up to 0.6% earlier, concluded with a 1.0% loss. Weakness among semiconductor stocks also weighed on the broader market, as a sell-the-news reaction affected the PHLX Semiconductor Index, which plummeted by 3.4%. Even NVDA, despite a temporary 6.6% surge, closed near its daily low with a meager 0.1% gain.
Notable underperformers included Boeing (BA), a Dow component, which faced a 4.9% decline after announcing a new flaw in the 737 MAX that will impact near-term deliveries. T-Mobile (TMUS) dropped 2.2% after revealing plans to reduce approximately 7% of its workforce, and Dollar Tree Stores (DLTR) disappointed with its Q3 outlook, leading to a 12.9% decline.
All 11 S&P 500 sectors concluded in negative territory, with losses ranging from 0.2% in financials to 2.2% in information technology.
Despite another promising initial jobless claims report and in anticipation of Fed Chair Powell's speech on the economic outlook at the Jackson Hole Symposium on Friday, Treasury yields settled slightly higher, maintaining pressure on stocks. The 2-year note yield climbed eight basis points to 5.01%, while the 10-year note yield rose four basis points to 4.24%.
Reviewing the economic data for the day:
Friday's trading session brought its share of fluctuations, ultimately concluding on a positive note with major indices settling near their day's highest levels. The upbeat session occurred amid low trading volume, with the market's sentiment briefly questioned following Fed Chair Powell's much-anticipated speech at the Jackson Hole Symposium. Although attempts were made to interpret the speech as unexpectedly hawkish as the market temporarily dipped into negative territory, the speech didn't introduce any surprising revelations. Chair Powell reiterated the Fed's commitment to the 2.0% inflation target, emphasized the ongoing journey towards achieving that target, and acknowledged the possibility of future rate hikes if deemed appropriate. These statements echoed his post-FOMC meeting remarks. His concluding statement about proceeding cautiously while deciding on tightening measures or maintaining policy rates drew attention, not due to its content, but for what it didn't mention – any contemplation of rate cuts. While the omission of rate cut considerations raised eyebrows, it shouldn't have been seen as truly hawkish, especially since Chair Powell had previously stated that rate cuts in the near future were unlikely. Market sentiment eventually regrouped, buoyed by renewed interest in mega-cap stocks and broad-based sector buying, leading all 11 S&P 500 sectors to close positively. The Invesco S&P 500 Equal-Weight ETF (RSP) and Russell 3000 Value Index each gained 0.5%, while the Russell 3000 Growth Index advanced by 0.7%. Noteworthy sector performances included consumer discretionary (+1.1%), energy (+1.1%), industrials (+0.9%), information technology (+0.8%), and utilities (+0.8%). Other sectors secured gains ranging from 0.2% to 0.6%. While communication services (+0.2%) lagged slightly, it managed to rebound from a 1.7% loss earlier in the day. Boeing (BA) stood out, soaring 2.8% and topping the Dow Jones Industrial Average component list a day after being its worst performer. This turnaround was attributed to a Bloomberg report indicating Boeing's plans to resume 737 MAX deliveries to China. Of the 30 Dow Jones Industrial Average components, 25 closed higher. Beyond equities, the Treasury market underwent its own fluctuations. The 2-year note yield peaked at 5.10% before settling at 5.05%, a four-basis-point increase from the prior day. While the 10-year note yield briefly hit 4.27% after Powell's speech, it ultimately ended the day unchanged at 4.24%.
Remarkably, the S&P 500's low point of the day roughly coincided with the 10-year note yield's daily peak.
In terms of economic data:
The final reading of the University of Michigan Consumer Sentiment Index for August came in at 69.5 (compared to the consensus of 71.2) versus the preliminary reading of 71.2. The final reading for July was 71.6, marking the highest level since October 2021. A year ago, the index stood at 58.2. The report suggests that consumers perceive the pace of economic improvement over the past three months has moderated, leading to a more cautious outlook.
The closing values of various indices were as follows: TSX at 19,860, the S&P 500 Index at 4,406, NASDAQ at 13,591, and Dow Jones Industrial Average at 34,347. Over the week, these indices exhibited diverse trends in performance. While the TSX and S&P 500 Index registered gains of 0.2% and 0.8%, respectively, contributing to their year-to-date increases of 2.4% and 14.7%, the NASDAQ saw a substantial weekly gain of 2.3%, pushing its year-to-date growth to 29.8%. On the other hand, the Dow Jones Industrial Average experienced a minor decline of -0.4% during the week, resulting in a year-to-date gain of 3.6%. Regarding bond market performance, Bonds closed at $95.87, showing a weekly increase of 0.3% and a year-to-date growth of 0.7%. Similarly, Canada Investment Grade Bonds also displayed a weekly growth of 0.2% and a year-to-date change of 0.2%. Shifting to yields, the 10-yr GoC Yield remained steady at 3.70%, with no changes for the week or year-to-date. Meanwhile, the 10-yr Treasury Yield settled at 4.23%, showing no fluctuations over the week or year-to-date. In the realm of commodities, the price of Oil per barrel stood at $80.06, experiencing a decrease of -0.7% over the week, along with a marginal year-to-date decline of -0.2%. The Canadian/USD Exchange rate closed at $0.73, indicating a weekly decrease of -0.5%, and a year-to-date decline of -0.6%.
Previous update:
Throughout this week, major market indices experienced losses, primarily influenced by rising market rates and continued downward momentum that originated from the ongoing selling activities in August. Several trading sessions during the week exhibited below-average trading volume, a characteristic commonly observed during the late summer period.
The selling pressure this week resulted in the S&P 500 breaking below its 50-day moving average for the first time since March, and it also surpassed the 4,400 support level. Despite these declines, the price movements throughout the week seemed consistent with the trend of consolidation that has defined stock performance for the month.
A significant driver for the selling interest in the stock market was the movement of Treasury yields. The 10-year Treasury note yield, reaching its highest point since November 2007 at 4.31% on Thursday, experienced an increase of eight basis points over the week, settling at 4.25%.
The rise in the 10-year Treasury yield for the month is now at 29 basis points. Market participants focused on supply-related concerns and incoming data that continue to support the idea of a soft landing or no landing scenario, which would likely maintain inflation above the Federal Reserve's 2.0% target. The Fed's stance is leaning towards an enduring period of higher rates, possibly including further rate hikes.
During this week, investors received the Federal Open Market Committee (FOMC) Minutes from the late July meeting. The release of these minutes induced some volatility in the immediate aftermath, with knee-jerk selling prompted by certain hawkish statements within the minutes. For instance, a notable point was that "most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy." However, this perspective wasn't entirely surprising given remarks previously made by Fed Chair Powell following the meeting.
Global growth concerns, notably those related to China, also contributed to the downward pressure on stocks during the week. China reported weaker-than-expected data for retail sales, industrial production, fixed asset investment, and home prices in July. Additionally, property developer Evergrande filed for Chapter 15 bankruptcy protection in the U.S.
In response to the weakening economic activity, the People's Bank of China made moves to lower its one-year medium-term lending facility rate to 2.50% from 2.65% and also decreased the seven-day reverse repurchase rate by ten basis points to 1.80%. The central bank also reportedly directed state banks to increase their interventions in the foreign exchange market to provide support for the yuan.
Bank stocks faced challenges during the week following a warning from Fitch Ratings about the potential downgrading of ratings for several additional banks. This warning emerged shortly after Moody's downgraded the ratings of several small to mid-sized U.S. banks a week prior.
Regarding earnings, Home Depot (HD) and Cisco (CSCO), both Dow components, received positive market reactions to their reports. However, fellow Dow component Walmart (WMT) experienced a decline after releasing its earnings report. Notable winners in terms of earnings included Target (TGT), TJX Cos. (TJX), and Applied Materials (AMAT).
On Monday, the major stock indices displayed a somewhat mixed performance, accompanied by below-average trading volume at the NYSE. The lack of strong conviction on either side of the market aligns with the typical behavior observed during the late summer period and consolidation efforts. Declining stocks held a slightly less than 3-to-2 advantage over advancing ones at both the NYSE and the Nasdaq. The influence of mega-cap companies significantly impacted the gains of the indices, leading to the outperformance of both the S&P 500 and the Nasdaq. The Vanguard Mega Cap Growth ETF (MGK) rose by 1.2%, contributing to the 0.6% gain in the market-cap weighted S&P 500. In contrast, the Invesco S&P 500 Equal Weight ETF (RSP) ended the day with little change.
Tuesday brought about a weak performance in stocks, characterized by another session with relatively light trading activity. The major indices had been maintaining modest losses, with the S&P 500 finding support near its 50-day moving average (4,447) at the beginning of the day. However, selling intensified in the final half-hour of trading, causing the S&P 500 to breach its 50-day moving average. As a result, the indices closed near their lowest levels of the day, and the S&P 500 closed below its 50-day moving average for the first time since March. Market participants continue to grapple with the idea that the market might be due for a pullback after a period of robust gains, leading to concerns about valuations. Concerns over growth were heightened by weaker-than-expected data for retail sales, industrial production, and fixed asset investment from China in July. Additionally, a warning from Fitch Ratings about potential downgrades for several banks provided investors with a reason to trim their positions. Bank stocks experienced notable weakness, particularly due to the Fitch Ratings warning, which came shortly after Moody's downgraded ratings for ten small to mid-sized U.S. banks the previous week. The SPDR S&P Regional Banking ETF (KRE) and the SPDR S&P Bank ETF (KBE) fell by 3.3% and 3.1%, respectively. Minneapolis Fed President Kashkari's opinion that banks might need to adhere to stricter capital regulatory standards also contributed to the decline. Concerns about an economic slowdown led to the underperformance of sectors aligned with cyclically-driven businesses. Conversely, growth stocks showed relative outperformance compared to value stocks. The Russell 3000 Growth Index declined by 1.0%, while the Russell 3000 Value Index fell by 1.4%.
Looking at Tuesday's economic data, it was reported that total retail sales for July increased by 0.7% month-over-month, surpassing the market consensus of 0.4%. Excluding automobile sales, retail sales rose by 1.0% month-over-month, surpassing the expected 0.4%. These figures indicate that discretionary spending on goods remained robust in July, suggesting that the strong labor market is helping to prevent a severe economic downturn. Furthermore, the August Empire State Manufacturing Survey exhibited a drop to -19.0, indicative of a contraction in manufacturing activity, and the NAHB Housing Market Index fell to 50 in August from 56 in July. Additionally, import prices increased by 0.4% in July, and export prices rose by 0.7%. Although there were monthly gains, both import and export prices experienced year-over-year declines of 4.4% and 7.9%, respectively. Business inventories remained flat in June, and the August Empire State Manufacturing Survey decreased to -19.0 from 1.1 in July.
On Wednesday, the stock market concluded with a negative tone, continuing Tuesday's losses in another session characterized by low trading volume at the NYSE. The market displayed initial modest weakness due to a lack of clear direction from buyers or sellers. Although the S&P 500 briefly touched its 50-day moving average (4,449) early in the session, it failed to surpass this significant technical level, prompting renewed selling activity. Throughout the day, the major indices traded within relatively narrow ranges until the release of the FOMC Minutes from the July meeting at 2:00 p.m. ET, which led to some erratic market movement. Immediate reactions to certain hawkish-sounding headlines from the minutes caused some initial selling. For instance, the minutes revealed that "most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy." Nevertheless, this perspective wasn't particularly surprising given the remarks made by Fed Chair Powell following the July meeting. Consequently, stocks rebounded from this initial knee-jerk selling, although the recovery halted as the 10-year Treasury note yield climbed beyond 4.25%, surpassing the closing high yield observed in October of the previous year. The 2-year Treasury note yield increased by three basis points to 4.97%.
Ultimately, the S&P 500 closed slightly above the 4,400 level, ending the session at its lowest point for the day. This trend reflects the ongoing consolidation trade that had been underway since the beginning of the month. Concerns about diminishing economic growth were an additional factor contributing to the market's weakness, partly triggered by China's report of yet another decrease in home prices. In contrast, the U.S. experienced stronger-than-expected housing starts and industrial production in July. The Atlanta Fed GDPNow model updated its estimation for real GDP growth in the third quarter to 5.8%, up from the previous 5.0%, which led to apprehensions about potential rate hikes in the Treasury market.
Shifting to Thursday, the major indices ended the day with a downtrend, despite initially trading relatively flat. Initially, the S&P 500 held firm with the 4,400 level acting as a support. However, as the afternoon progressed, a downward movement gained momentum, causing the major indices to close near their lowest points of the day, ultimately falling below the 4,400 level. This orderly afternoon decline aligned with the consolidation pattern that has characterized price action throughout the month. Another rise in market rates provided investors with justification to reduce their holdings. The 10-year Treasury note yield surged by five basis points to 4.31%, reaching its highest level since November 2007.
The morning's weekly jobless claims data demonstrated the tight labor market conditions, which played a role in influencing the movement of the 10-year Treasury yield. The number of claims decreased to 239,000 from the previous week's 250,000. Within the corporate sphere, Cisco (CSCO), a Dow component, stood out as a positive performer following its earnings report, whereas another Dow component, Walmart (WMT), experienced a decline after its earnings report.
Analyzing Thursday's economic data, the weekly initial jobless claims figure came in at 239,000 (against the consensus of 240,000), down from a revised 250,000 in the previous week. This data reinforced the idea of a tight labor market, indicating that the economy is not on track for a significant downturn. Additionally, the August Philadelphia Fed Index improved to 12.0 (compared to the consensus of -9.0) from -13.5 in the previous month, and the July Leading Indicators showed a decline of 0.4% (matching consensus) following a prior decline of 0.7%.
Friday saw a mixed performance in the stock market. Early selling pushed the S&P 500 to its lowest point in nearly eight weeks, while the Nasdaq experienced a slide to a ten-week low. However, as mid-morning approached, the major indices began to recover slightly despite the absence of any significant news. Notably, in the final 10 minutes of trading, a sharp and brief upward movement occurred, resulting in the Nasdaq briefly entering positive territory for the only time during the session.
Ultimately, the S&P 500 concluded the day with no change, the Nasdaq declined by 0.2%, and the Dow Jones Industrial Average recorded a 0.1% increase. The Russell 2000 displayed a slight performance advantage by gaining 0.5% on the day. Initial weakness was primarily attributed to losses experienced by mega-cap stocks, concerns about China following the news that property developer Evergrande had filed for Chapter 15 bankruptcy protection in the U.S., and the lingering downward momentum from consistent selling throughout August.
The TSX index closed the week at 19,831 points, reflecting a decline of 2.8% over the week, while it has gained 2.3% year-to-date. Similarly, the Dow Jones Industrial Average ended the week at 34,501 points, experiencing a decrease of 2.2% for the week, while it has shown a year-to-date increase of 4.1%. The S&P 500 Index finished the week at 4,370 points, marking a 2.1% decline for the week, with a year-to-date growth of 13.8%. The NASDAQ closed the week at 13,291 points, facing a 2.6% drop over the week, while its year-to-date performance remained strong at 27.0% growth. The MSCI EAFE index concluded the week at 2,069 points, reflecting a decline of 2.8% for the week, with a year-to-date increase of 6.4%. The 10-year Treasury Yield stood at 4.25%, showing a slight 0.1% increase over the week and a 0.4% gain year-to-date. Similarly, the 10-year GoC Yield also increased by 0.1% over the week, reaching 3.71%, and has seen a year-to-date growth of 0.4%. Bonds closed at $95.61, experiencing a 0.5% decrease for the week but maintaining a slight year-to-date growth of 0.2%. Conversely, Canadian Investment Grade Bonds showed a decline of 0.7% for the week and a year-to-date decrease of -0.4%. Oil prices stood at $80.63 per barrel, representing a 3.1% decline over the week, yet showing a year-to-date growth of 0.5%. The Canadian/USD Exchange rate was at $0.74, witnessing a 1.1% decrease over the week and a minor year-to-date decrease of -0.1%.