August 11, 2024
Volume 11, Issue 32
Weekly Recap
If you hadn’t seen what happened last week and merely seen Monday opening and Friday closing prices, you might wonder what the fuss was about. The major domestic equity indexes closed modestly lower for the week after recovering from Monday’s biggest sell-off in nearly two years.
The S&P 500 neared correction territory (down over 10 percent from its most recent high) on Monday morning, when it fell as much as 9.71 percent from its intraday high in mid-January. At around the same time, the Nasdaq Composite was down 15.81 percent from its peak, after entering a correction the previous Friday. Even more pronounced were the swings in the CBOE Volatility Index (VIX), Wall Street’s so-called “fear gauge,” which briefly spiked Monday to 65.73, its highest level since late March 2020, before falling back to end the week at 20.69. Conversely, short covering – or the need to hedge bets that stocks would go down further – seemed to help stocks move off their lows Monday afternoon, and stock buybacks also seemed to provide support.
Continuing worries about the previous week’s downside economic surprises – particularly the surprise increase in the unemployment rate and negative manufacturing signals – also seemed to be at work. In earnings calls, several major companies reported signs of weakening consumer demand. Airbnb, Marriott, Hilton, Delta, United, and Disney all reported softer travel demand, while Yum! Brands referenced slowing sales at its KFC and Pizza Hut franchises.
Data from S&P Global offered a somewhat contrasting picture, however. S&P’s gauge of services sector activity fell slightly in July to 55.5 from 56.0 in June but remained solidly in expansion territory – rounding out its best three-month growth spell in two years. (Readings above 50.0 indicate expansion.) Likewise, the Institute for Supply Management’s rival gauge bounced back from a contractionary 48.8 in June – its lowest reading in over three years – to 51.4.
A reassuring drop in weekly jobless claims on Thursday seemed partly responsible for a bounce-back rally, with the S&P 500 scoring its best daily gain since November 2022. Weekly claims fell to 233,000 from an upwardly revised 250,000, although the number of continuing claims rose slightly, by 6,000, to 1.875 million. Observers also seemed to take another look at the previous week’s increase in the household unemployment survey, particularly the role played by Americans and recent migrants (who are not included in the weekly claims data) newly reporting that they are looking for work. As fears over a weakening labor market appeared to wane, the yield on the benchmark 10-year U.S. Treasury increased significantly over the week. In a positive sign for market liquidity, assets in the Fed’s overnight reverse repo facility dropped to their lowest level in more than three years, as favorable funding market conditions encouraged users to shift more cash away from the central bank.
Market Monitor
A full listing of market performance data is available here.
DQYDJ.com (“Don’t Quit Your Day Job”) offers helpful investment calculators here, including one that shows total returns for individual stocks. Koyfin.com provides reams of data on individual stocks, including the ability to track total return — and just about anything else — over time.
In the News
It turned out that reports of a worldwide economic collapse earlier this week were greatly exaggerated. Stocks took a big hit during a worldwide sell-off on Monday when all three major American market indices – the Nasdaq Composite, Dow Jones Industrial Average, and S&P 500 – lost more than 2.5 percent in value, the latter two suffering their worst days since 2022. Early Monday, the VIX – often described as Wall Street’s “fear gauge,” which measures the expected volatility in U.S. indices – notched its third-highest level since records began in 1992, with only the 2008 market crash and the beginning of the COVID-19 pandemic “ahead” of it. Across the Pacific, Japan’s Nikkei 225 index had its own, even more severe, case of the Mondays hours before Wall Street’s opening bell, dropping more than 12 percent in Tokyo’s worst downturn since 1987.
Monday’s sell-off-palooza exacerbated fears that an economic recession – usually defined by two consecutive quarters of GDP decline – was in the offing after the previous Friday’s disappointing U.S. jobs report saw the July unemployment rate surprisingly rise to 4.3 percent from June’s 4.1.
However, the world economy’s terrible, no good, very bad day did not have legs. International markets rebounded significantly on Tuesday, with all three major indices gained ground while the Nikkei 225 soared more than 10 percent. U.S. markets slightly tumbled on Wednesday, but nowhere near as dramatically as earlier in the week.
A rebound in stocks in the final stretch of a wild week drove the market to its biggest back-to-back advance in 2024 over Thursday and Friday.
The Department of Labor reported Thursday that weekly jobless claims unexpectedly fell during the week ending August 3, calming recessionary fears after last Friday’s lackluster unemployment report and pushing stocks higher. Unemployment benefits claims dropped to 233,000 last week, down 17,000 from the week prior and lower than economists’ estimate of 240,000.
What is the “carry trade”? As America teeters between a soft landing and recession, uncertainty is weighing on anxious consumers and businesses. After such a wild week in the markets, that rekindled fears about the strength of the U.S. economy, many are now wondering what comes next.
Charts of the Week
I found the following articles to be of note. Some may be of interest only to advisors while others are aimed more broadly. You may hit paywalls below; many can be overcome here.
- How to Stay Sane When Markets Get Wild (Jason Zweig)
- 10 Phrases That Calm Clients’ Market Fears (Bryce Sanders)
- The 3 Biggest Mistakes You Can Make With Your 401(k) (Diane Harris)
This is the best thing I’ve read recently. The skeeviest. The most important. The most inspiring. Fandom. Only third? Innovation. How much is Olympic gold worth?
In the second quarter, Google-parent Alphabet made $1.023 billion in net interest income alone, income made just by having a large pile of money in interest-bearing accounts. This is more than the actual profits of 397 companies in the S&P 500.
“Is your financial plan a manifestation of who you are? Or is it made in the image of your financial advisor or financial guru du jour?” ~ Tim Maurer
Securities and advisory services are offered through Madison Avenue Securities, LLC, a member of FINRA and SIPC, a registered investment advisor. This report provides general information only and is based upon current public information we consider reliable. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures, or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment, or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Diversification does not guaranty against loss in declining markets.
