Stock Market

Markets rebounded soundly after a steep sell-off in the first part of August, during which the S&P 500 lost as much as 7.5%, the Dow was down 5.4%, and the Nasdaq sank 10.7%.

But by the end of the month, the blue-chip S&P 500 had climbed to record highs, experiencing its fourth straight winning month.

For the month, the stock market’s three major indices performed as follows:

The Dow +1.8%
S&P 500 + 2.3%
Nasdaq Composite +0.7%

Inflation

Early August’s inflation readings showed that in July, the consumer price index (CPI) increased 0.2%, setting the 12-month rate of inflation at 2.9%. That encouraging inflation data was the nod the Fed may need to lower rates in September, with the lowest annual inflation and the first sub-3% inflation since March 2021.

Stripping out volatile food and energy prices, core CPI rose 0.2% for the month of July and 3.2% on an annual basis, the lowest since April of 2021.

Both CPI and core CPI came in as largely expected by analysts.

Inflation readings on the final trading day of the month showed that the Personal Consumption Index—the Fed’s preferred gauge—rose 0.2% on a monthly basis and 2.5% annually, both in line with expectations.

GDP

Based on updated estimates, the U.S. economy grew at a healthier pace in Q2, with a 3% increase in GDP. That surpassed earlier estimates of 2.8% GDP growth, in large part due to more robust consumer spending and business investment.

The 3% Q2 economic growth also represents a significant uptick from Q1’s 1.4% GDP increase, painting the picture of a resilient economy despite high interest rates and mounting inflation.

Fed & Rates

At his recent speech at the Jackson Hole Economic Policy Symposium, Fed Chair Jerome Powell was positively dovish about imminent interest rate cuts, offering a sigh of relief for markets that had long awaited rate drops in 2024.

“Time has come for policy to adjust,” said Powell in Jackson Hole.

The question seems to have turned from if rates will be cut or even when to how much.

 Markets are now pricing in a 75% chance that the Fed will cut its benchmark rate by at least a full percentage point from its current range of 5.25%-5.50% by the end of 2024, according to the CME Group’s FedWatch tool.

If the Fed indeed followed that roadmap, it would need to cut the rate by 50 basis points (half a percentage point) at least once during its three remaining monetary policy meetings this year.

The next highly anticipated Federal Open Market Committee (FOMC) meeting will occur on September 17-18.

Jobs & Unemployment

The early August jobs report found that nonfarm payrolls increased by only 114,000 in July, according to the U.S. Bureau of Labor Statistics, a far cry from recent solid job increases. The paltry report sent shockwaves through the stock market, rattling recession fears on Wall Street.

Job gains in July were well below the 175,000 payroll increases forecast by analysts and the 12-month average of 215,000 new jobs.

Later in August, it was revealed that job growth over the past year was significantly weaker than estimated. A new data release from the Bureau of Labor Statistics (which, uncharacteristically, came out more than half an hour late, irritating Wall Street traders), showed that there were 818,000 fewer jobs created in the year up until March.

Projected over the year, the monthly job gains from April 2023 to March 2024 are now estimated at 173,400 versus 242,000 as previously reported. These numbers will be confirmed and finalized in February 2025.

Recession Watch

Warning bells about an imminent recession grew louder after an early August correction on Wall Street, but economists are still sorting out if that’s mostly based on facts or just fear.

For instance, the leading index – a key indicator of recessionary economic conditions – fell 0.6% in July, the fifth straight monthly drop.

Based on current data, Goldman Sachs slashed its probability forecast for a recession to 20%, down from its prior reading of 25%. While its anticipated odds of a recession had vaulted to 25% after nearly a year at just 15%, retail sales and jobless claims data seem to have eased its concerns for the moment, leading it to drop its measure of the likelihood of a recession to just one in five.

How Will Markets Respond to our Presidential Election?

With a presidential election coming up in November, many of us are contemplating how election season may affect the markets.

Based on historical data, Crystal Funds has concluded that there is “…no real connection between the direction of markets and election season winners, although volatility during election years tends to be heightened due to political uncertainty.”

Although it certainly is no predicter of future market movement, the U.S. stock market did react positively to the 2016 election of Donald Trump and Joe Biden in 2020.

According to research, it seems that election results – no matter if the winner is red or blue – clear up uncertainty that previously injected the market with volatility and breadth.

Real Estate and Mortgage

Recent volatility in the stock market was good news for mortgage rates, homeowners, and buyers. In August, mortgage rates fell to a 15-month low after the average national rate on a 30-year home loan saw its biggest weekly decline in nine months.

The average rate for a 30-year fixed mortgage fell to 6.47% last month, down from 6.73% a week earlier and 6.96% the same time a year prior. Lower mortgage rates sent refinance applications 16% higher in just one week and provided a much-needed boost of affordability to homebuyers.

Notable Quote

“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
– Phillip Fisher