Weekly review
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%.
Previous update:
The Dow Jones Industrial Average managed to secure a marginal increase this week, while the S&P 500, Nasdaq, and Russell 2000 encountered losses in their performance. Trading activities throughout the week reflected a prevailing consolidation sentiment that has taken hold in August, following a substantial and consistent surge in the stock market since late March. Notably, the S&P 500 concluded the week with a close below the 4,500 level on Friday.
This week's trading sessions also displayed instances of below-average volume at the NYSE, indicating a lack of active participation in the first full week of August. Several news triggers emerged, providing market participants with reasons to pull back from investments during the week. Concerns about global growth were raised by disappointing trade data for July and notably weaker-than-anticipated new yuan loan growth for the same month from China. Moreover, Chinese property developer Country Garden Holdings issued a warning of an expected loss of nearly $8 billion in the first half of 2023.
In the U.S., a range of economic data showed mixed results overall. While the total CPI and core-CPI matched consensus estimates, the Producer Price Index for July exceeded expectations at the headline level, although this heat was offset by downward revisions for June. Additionally, initial jobless claims continued to stay well below levels indicative of a recession.
Earlier in the week, Moody's credit rating downgrades for ten smaller U.S. banks, along with the potential downgrade of larger banks, also contributed to the prevailing consolidation mindset.
Turning to corporate earnings, Walt Disney (DIS), a component of the Dow, emerged as a standout winner, enjoying a 3.2% increase in its stock after reporting positive results. In contrast, UPS (UPS) faced a decline after issuing a disappointing FY23 revenue outlook, citing reduced e-commerce demand and an anticipation of lower volumes following an improved labor contract, which consequently led to revised downward guidance.
In terms of sector performance, the S&P 500 energy (+3.5%) and health care (+2.5%) sectors exhibited strong performance, whereas the information technology sector (-2.9%) experienced the most significant decline.
Continuing their ascent, Treasury yields continued to rise during the week, serving as another constraining factor for equities. Specifically, the 2-year note yield climbed by 11 basis points to reach 4.89%, while the 10-year note yield increased by nine basis points to reach 4.17%.
Monday's trading activity was relatively subdued, with much of the action occurring at the market open. The broader market spent the day working to maintain and build upon its gains. Despite a scarcity of significant market-moving corporate news, economic data, and trading volume, a buy-the-dip trend was observed, particularly favoring blue chip stocks and value-oriented plays. This strategy contributed to healthy advances for the Dow Jones Industrial Average, where only three out of the 30 components concluded in negative territory. Additionally, the S&P 500 managed to close above the 4,500 mark and settle near its session highs.
Tuesday's trading displayed a negative undertone following the gains observed on Monday. While the major indices ended the day with losses, they managed to recover from their earlier lows. Despite experiencing declines of as much as 1.2%, 1.3%, and 1.6% in the morning for the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite, respectively, they ultimately concluded the day with losses of 0.4%, 0.5%, and 0.8%. The losses seen on Tuesday were attributed to widespread selling, which appeared consistent with typical consolidation efforts. The market observed weakness across various market caps and factors, accompanied by losses in 21 of the 30 Dow components and eight out of the 11 S&P 500 sectors. The backdrop of concerns about global economic growth provided a rationale for investors to trim their holdings. These concerns were amplified by weaker-than-expected trade data from China for July, revealing a year-over-year decline of 14.5% in exports and 12.4% in imports—the latter being the steepest contraction in over two years. Further contributing to the negative sentiment, UPS (UPS) issued a disappointing FY23 revenue outlook. The company cited diminishing e-commerce demand and predicted lower volumes following a revised labor contract, which led to the lowered guidance. The sentiment was also affected by the downgrading of credit ratings for smaller U.S. banks by Moody's, with larger banks potentially facing similar actions. Consequently, both the SPDR S&P Regional Banking ETF (KRE) and the SPDR S&P Bank ETF (KBE) declined by 1.3%. In terms of economic data released on Tuesday, the July NFIB Small Business Optimism Survey came in at 91.9 (compared to a consensus of 92.1), reflecting a slight decline from the previous reading of 91.0. Additionally, the June Trade Balance stood at -$65.5 billion, slightly higher than the expected -$65.1 billion, indicating a deficit. Meanwhile, June Wholesale Inventories saw a decline of 0.5% (compared to an expected decline of 0.3%), indicating a decrease in stockpiles. Notably, the lack of growth in both exports and imports in the Trade Balance data underscored weaker demand both domestically and internationally.
Wednesday marked another day of losses in the stock market. The major indices exhibited a pattern similar to Tuesday's trading session, initially rebounding from their lows and appearing to close on a positive note. However, market sentiment took a sudden downturn towards the close, causing the indices to conclude near their lowest levels of the day. In Tuesday's trading, the S&P 500 experienced a decline to 4,464 points before reversing course and finishing the session at 4,499. On Wednesday, a similar scenario unfolded as the S&P 500 dropped to 4,461 points before reversing, yet it failed to surpass the 4,500 mark. This reversal prompted late selling activity. The market-wide deterioration was noticeable, with a broad range of stocks participating, but the impact of losses among mega-cap companies had a disproportionate influence on index performance. The Invesco S&P 500 Equal Weight ETF (RSP) displayed a 0.3% gain around 3:00 p.m. ET, only to close with a 0.3% loss. Similarly, the Vanguard Mega Cap Growth ETF (MGK) showed a 0.5% decline around the same time but concluded with a 1.1% loss. The market-capitalization-weighted S&P 500 exhibited a 0.1% decline around 3:00 p.m. ET, eventually closing with a 0.7% loss.
Transitioning to Thursday, the major indices began the session on a strong note but ultimately concluded the day relatively unchanged in another session characterized by light trading. Robust buying interest was observed at the session's outset, driven by buy-the-dip activity and encouraging economic data. The S&P 500, Nasdaq, and Dow Jones Industrial Average saw morning highs of 1.3%, 1.6%, and 1.3% gains, respectively. This propelled the S&P 500 above the resistance level at 4,500. However, the initial positive momentum waned as mega-cap stocks retreated from their highs. The 10-year Treasury note yield, which had fallen to 3.95% in response to the morning's economic data, rebounded to 4.08% following a lackluster 30-year bond auction. Consequently, the S&P 500 slipped back below the 4,500 level and closed near its session lows. In terms of Thursday's economic data, the July Consumer Price Index (CPI) demonstrated a 0.2% month-over-month increase, in line with expectations. Similarly, the core CPI, excluding food and energy, also posted a 0.2% month-over-month gain, aligning with consensus estimates. On a year-over-year basis, total CPI rose by 3.2%, compared to 3.0% in June, while core CPI registered a 4.7% increase, down from 4.8% in June. Notably, the shelter index played a significant role in the overall index increase, accounting for over 90% of the rise. The data also indicated that the all-items index, excluding shelter, saw a modest 1.0% year-over-year increase on an unadjusted basis. Additionally, initial jobless claims for the week ending August 5 increased by 21,000 to 248,000, surpassing the consensus of 230,000. Continuing jobless claims for the week ending July 29 decreased by 8,000 to 1.684 million. The EIA Natural Gas Inventories for the week showed a build of 29 bcf (billion cubic feet), contrasting with the previous week's build of 14 bcf. The July Treasury Budget indicated a deficit of $220.8 billion, up from a deficit of $211.1 billion during the same period in the previous year. This July deficit stemmed from outlays exceeding receipts, with the budget data not being seasonally adjusted. Crucially, the report underscored the continuous growth of the budget deficit, standing at $1.61 trillion fiscal year-to-date, compared to $1.375 trillion for the entire fiscal year 2022. Notably, net interest expenditures in July surpassed national defense spending.
Friday marked the conclusion of the first complete week of August in the stock market, with a mix of results observed in a session characterized by light trading. Notably, market rates surged following a July Producer Price Index (PPI) report that exceeded expectations in terms of heat. This occurrence provided investors with a rationale to persist in their ongoing consolidation efforts that have been unfolding this month, following an impressive start to the year. Before the PPI report's release, the 2-year note yield stood at 4.80% and surged by six basis points to 4.89%. Similarly, the 10-year note yield, positioned at 4.08% prior to the release, increased by nine basis points to 4.17%. The presence of weak mega-cap stocks exerted downward pressure on the major indices, ultimately leading to losses in the S&P 500 and Nasdaq, while the Dow Jones Industrial Average managed to secure a gain. Notably, the Vanguard Mega Cap Growth ETF (MGK) experienced a 0.6% decline, whereas the Invesco S&P 500 Equal Weight ETF (RSP) concluded the session unchanged.
Specifically, the S&P 500 recorded a 0.1% decline, the Nasdaq Composite fell by 0.7%, and the Dow Jones Industrial Average achieved a 0.3% rise. Underlying the index performance, market breadth exhibited a mixed pattern. Advancers maintained a slight edge over decliners at the NYSE, while decliners surpassed advancers by a ratio of 4-to-3 at the Nasdaq. Turning to Friday's economic data, the July Producer Price Index (PPI) reported a 0.3% increase, surpassing the consensus of 0.2%. Notably, the prior reading was revised from 0.1% to 0.0%. Similarly, the July Core PPI experienced a 0.3% rise, in contrast to the consensus of 0.2%. The prior reading for Core PPI was adjusted from 0.1% to -0.1%.
In light of this report, it is evident that wholesale inflation has considerably receded from its peak in 2022. However, the recent surge in oil and gasoline prices has raised concerns regarding potential delays in further improvements.
Furthermore, the preliminary August University of Michigan Consumer Sentiment index registered a value of 71.2, slightly above the consensus of 70.9. This reading reflected minimal overall changes in sentiment, partially attributed to largely stable inflation expectations. Notably, both year-ahead and five-year inflation expectations witnessed a decrease of ten basis points each.
In conclusion: The TSX index concluded the week at 20,405, marking a 0.8% increase in the week's performance and showing a year-to-date growth of 5.3%. Similarly, the S&P 500 Index closed at 4,464, experiencing a marginal decline of -0.3% during the week, yet maintaining a robust year-to-date surge of 16.3%. The Dow Jones Industrial Average exhibited a 0.6% increase for the week, closing at 35,281, and achieving a year-to-date growth of 6.4%. Conversely, the NASDAQ index faced a decline of -1.9% for the week, ending at 13,645, although it maintained a substantial year-to-date growth of 30.4%. The MSCI EAFE index recorded a positive trajectory, closing at 2,154, with a 0.5% increase for the week and a year-to-date growth of 10.8%. While Canada Investment Grade Bonds experienced a slight decline of -0.2% for the week, they retained a year-to-date growth of 0.5%. Bond prices faced a moderate decrease, amounting to -0.6%, with the cost set at $96.10, yet they showed a year-to-date increase of 1.2%. The 10-year Treasury Yield was recorded at 4.16%, marking a marginal 0.1% increase for the week and maintaining a year-to-date growth of 0.3%. Similarly, the 10-year Government of Canada (GoC) Yield observed a 0.1% increase, concluding the week at 3.64%, and retaining a year-to-date growth of 0.3%. Oil prices exhibited resilience, ending at $83.12 per barrel and reflecting a 0.4% increase for the week and a year-to-date growth of 3.6%. The Canadian dollar exchange rate against the US dollar closed at $0.75, experiencing a slight decrease of -0.4% for the week, yet maintaining a year-to-date appreciation of 1.0%.