Additional content provided by Brian Booe, Associate Analyst, Research.

LPL Research provides its Weekly Market Performance for the week of August 26, 2024. As investors across the U.S. prepared their cars, boats, and coolers for Labor Day weekend, stocks steadied heading into the long weekend and unofficial end of summer. All three major indexes secured monthly gains, although the benchmarks ended mixed on the week amid key tech earnings and inflation data dominating headlines in the shadow of a dovish Jackson Hole Symposium. Treasury yields ended the week higher as the Fed’s near-term rate outlook grows ever clearer, while the U.S. dollar index surged on positive economic data.

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 08/30/24 @ 2:00 p.m. ET
Disclosures: Indexes are unmanaged and cannot be invested in directly‍.

U.S. and International Equities

Markets: Stocks started the week quietly, in the shadow of last Friday’s speech from Federal Reserve (Fed) Chair Jerome Powell and somewhat in waiting mode ahead of the week’s events. Despite low volume, markets came to life in the second half of the week amid key tech earnings and the latest batch of economic data, although the S&P 500 lost steam Thursday and Friday afternoon, closing 0.6% lower. The Nasdaq Composite ended the week 1.8% lower, while the Dow edged 0.2% higher. 

Following a dovish Jackson Hole Symposium last week, soft landing traction and dovish Fed-speak provided a positive underlying tone for markets early in the week. However, highly anticipated earnings from chipmaker giant NVIDIA (NVDA) held market attention. NVDA’s second quarter report on Wednesday afternoon, largely regarded as a barometer for the artificial intelligence (AI) theme and industry spending, topped estimates for nearly all metrics, but a tepid outlook caused the stock to wobble. Nonetheless, the AI investment mega-cycle remaining strong prevailed as a key takeaway from the report. On the economic front, high-profile releases included the second iteration of second quarter (Q2) gross domestic product (GDP), August Personal Consumption Expenditures (PCE) and core PCE, all drew investor attention. Markets rallied in reaction to the Fed’s preferred inflation metric, core PCE, rising a bit softer than expected, and after a positive revision to Q2 GDP indicated the U.S. economy grew faster than initially reported. But, as a wild month drew to a close, late week gains fizzled on weak seasonality as markets began to look ahead to September. 

European stocks ended the week well in the green, with the STOXX 600 index for European markets adding 1.34%. International markets typically monitor the U.S. economy and Fed rate cut bets; however, the Fed is not the major central bank currently making monetary policy headlines. With the September meeting for the European Central Bank (ECB) on the horizon, rate cut hopes were bolstered across the Atlantic following an in-line European Consumer Price Index (CPI) release on Friday. Markets advanced as Eurozone inflation reached its lowest level since 2021, while in the U.K., attention was also focused on the prospect of Bank of England (BOE) rate cuts this year, and tighter fiscal policy in efforts to close a fiscal gap and support public services. 

Turning to Asian markets, Japan continued to rebound from the sell-off that shook global markets to start the month of August. Japanese stocks struggled in the early hours of trading sessions this week but ended at weekly and monthly highs despite slowing economic data, and rising unemployment and inflation figures. China ended slightly lower to end a rocky five days, as corporate headlines placed downward pressure on markets. PDD Holdings, owner of popular e-commerce site Temu, issued a consumer outlook warning that turned heads, and fellow online retailer, JD.com, attempted to battle poor sentiment with share buybacks. The People’s Bank of China (PBOC) also weighed on local exchanges after the central bank held medium-term lending rates steady. Elsewhere, India gained after extending a historic winning streak that reached 12 days after the close on Friday, while Hong Kong added over 2%, and the tech-leaning markets of South Korea and Taiwan ended over 1% lower, and 0.5% higher, respectively.  

Fixed Income: The Bloomberg Aggregate Bond Index traded lower in a somewhat less eventful week for the bond market as the Fed’s near-term rate outlook continued to grow clearer. The 10-year Treasury yield closed ten basis points higher, and the monetary policy-sensitive two-year yield gained five basis points. Yields rose late in the week after GDP data further signaled a soft landing is likely, while inflation data on Friday raised expectations that the Fed will decide on a smaller rate cut in the September meeting. Furthermore, the 2-year and 10-year yield spread showed signs of dwindling back towards uninverted levels.  

Per last week’s commentary, the Fed appears to be ready to kick off an easing cycle in September, which means the Treasury yield curve will likely continue heading back to its traditional upward-sloping shape. For the past seven monetary cycles, interest rates have largely fallen, and the yield curve has generally steepened in the run up to the Fed’s first rate cut. In the 30 days prior to the Fed’s first rate cut, 2-year yields have fallen 0.56% on average, while 10-year yields have come down 0.37%. This trend continued in the 30 days following a rate cut, although to a lesser extent: 2-year yields rallied a further 0.12% on average, while 10-year yields fell another 0.04%. The yield curve is currently inverted only by a few basis points, so if history rhymes and there is a further rally out of the 2-year, the longest inverted yield curve ever will get back to normal in relatively short order. As long as the curve is inverted or flat, duration will remain relatively unattractive, so we recommend portfolios remain neutral duration to benchmarks but think cash investors are better served by locking in shorter-maturity Treasury yields at current levels. 

Commodities and Currencies: The Bloomberg Commodities Index ended the week 0.25% lower, paring weekly gains on Friday. West Texas Intermediate (WTI) crude shed 1.43% over the last five sessions with a sharp dive on Friday on reports that OPEC+ will start unwinding output cuts in the third quarter. Despite cuts in Libya’s oil exports, downward pressure on crude comes as the Labor Day holiday marks the end of the so-called “U.S. driving season” and weak refinery margins point to soft demand. In currencies, the U.S. dollar index climbed higher, largely on positive economic data that dampened the odds of a larger rate cut in September, although the greenback ended August weaker than it began. The dollar also found support late this week from month-end trading and rebalancing. The euro slipped against the dollar in its largest weekly drop since April, while the Japanese yen came under pressure from weaker-than-expected local economic reports. Gold slipped away from record highs to end the week 0.4% lower after a skid on Friday as the dollar advanced and U.S. PCE released provided evidence of sticky inflation in the States. Silver declined 3.2% after strong gains last week, while copper ended lower after losing steam midweek. 

Economic Weekly Roundup

Real Disposable Incomes Up for the Third Consecutive Month: Rising real disposable incomes will lower recession risks in the near term and provide support for retailers. Both headline and core inflation rose 0.16% from a month ago, a bit softer than expected. Consumers are still dealing with a bifurcated inflation experience as goods prices fell less than 0.1%, but prices for services increased by 0.2% on the month. Adjusting for inflation, incomes continue to grow despite the beginning signs of a softer job market. 

Overall, this is a good report for markets. Annual inflation will likely approach 2% in the coming months but could rebound slightly at the end of the year from base effects. Investors can reasonably expect the Fed to cut rates throughout the balance of 2024. 

Big Revisions to Spending: Q2 consumer spending was revised up to 2.9% annualized from initially reported as 2.3%. Headline GDP was revised up to 3% annualized from 2.8%. Revisions are often larger than normal during periods of flux. In addition to the Q2 growth revisions, investors got a surprise earlier this month from the large preliminary revisions to payrolls. The second release of GDP gives investors a look into Gross Domestic Income (GDI), a complementary way of measuring business activity. GDI often leads the way in predicting soft patches, as GDI showed early signs of weakness before the onset of the 1991 and 2008 recessions. 

Downward revisions to inflation accompanying an upward revision to spending builds the case for a soft landing. The key for the rest of this year will be the job market. Leading indicators for employment indicate services employment is starting to cool, but the savings from lower mortgage debt servicing will continue to support household balance sheets. 

The Week Ahead

The following economic data is slated for the week ahead:    

• Monday: Labor Day Holiday – No economic releases scheduled 
• Tuesday: S&P Global U.S. Manufacturing PMI (August final), Construction Spending (July), ISM Manufacturing (August), ISM Prices Paid (August), ISM New Orders (August), ISM Employment (August)  
• Wednesday: MBA Mortgage Applications (August 30), Trade Balance (July), JOLTS Job Openings (July), Factory Orders (July), Factory Orders ex Transportation (July), Durable Goods Orders (July final), Durables ex Transportation (July final), Capital Goods Orders Nondefense ex Aircraft (July final), Capital Goods Shipments Nondefense ex Aircraft (July final), Wards Total Vehicle Sales (August), Federal Reserve Releases Beige Book 
• Thursday: Challenger Job Cuts (August), ADP Employment Change (August), Nonfarm Productivity (Q2 final), Unit Labor Costs (2Q final), Initial Jobless Claims (August 31), Continuing Claims (August 24), S&P Global U.S. Services PMI (August final), S&P Global U.S. Composite PMI (August final), ISM Services Index (August), ISM Services Prices Paid (August), ISM Services Employment (August), ISM Services New Orders (August) 
• Friday: Two-Month Payroll Net Revision (August), Change in Nonfarm Payrolls (August), Change in Private Payrolls (August), Change in Manufacturing Payrolls (August), Unemployment Rate (August), Average Hourly Earnings (August), Average Weekly Hours All Employees (August), Labor Force Participation Rate (August), Underemployment Rate (August)