An important signal for an economic shift flashed this week. Is there uncertainty on the horizon or are we getting back to normal?
Monday S&P 500 0.00% | NASDAQ 0.00%
Happy Labor Day!
Tuesday S&P 500 -2.12% | NASDAQ -3.26%
The first day out of a long weekend and first week of the month sent markets reeling and looking for direction. September is known to be one of the lower-performing months in the year and markets appeared to double down on their viewpoint of slowing economic progress. Manufacturing continued its slide and GDP projections for Q3 fell 50 basis points according to the Atlanta GDPNow Forecast. Markets took note and proceeded to fall throughout the trading day.
Wednesday S&P 500 -0.16% | NASDAQ -0.30%
Trading stabilized after a rough start to the week. News in the U.S. Treasury markets were significant as the 2’s and 10’s exited inversion territory for the day and the first time in almost 30 months. This is where the 2-year yields exceed the 10-year yields (a “Normal” yield curve offers higher 10-year yields than 2-year yields). The inverted curve can act as a signal to the direction of the economy but has defied the norm in the post-pandemic world. The U.S. Economy has staved off a recession even with the inverted yield curve and signs of a significant downturn remain low! Big news on the job front indicated a slowing in the labor market with Job openings falling more than expected.
Thursday S&P 500 -0.30% | NASDAQ .25%
The NASDAQ rebounded on the day, but all other markets didn’t fare as well. The services sector held strong in the face of weaker data elsewhere, most notably in manufacturing. GDP estimates edged higher for Q3 as a result given the Services industry’s positive impact on economic production.
Friday S&P 500 -1.73% | NASDAQ -2.55%
Markets spiraled further to finish off the week. Nonfarm Payrolls (Aug) disappointed and July’s figures were revised lower. Markets responded in-kind with a strong sell-off going into the weekend. Labor markets, especially in a late cycle expansion, will dictate the direction of monetary policy and given a string of weaker jobs data, a September rate cut is not a question of if but how big.
Conclusion S&P 500 -4.25% | NASDAQ -5.77%
Summer of 2024 is now behind us and the outlook for the remainder of the year is coming into view (albeit blurry). September kicked off with a lackluster start and reinforced the importance of a diversified strategy in an ever-changing market environment. The tech sector fell and the broader S&P500 was unable to defend against the selloff as markets are looking to the next quarter or two of growth which corelates with interest rates. With interest rate cuts considered a foregone conclusion, the shift has moved towards sector rotation and taking advantage of current long-term rates before the cuts are made. While “normal” is subjective, a less restrictive interest rate environment leaves several scenarios on the table including both growth and contraction. Inverted yield curves have varied in terms of the impact on the economy. Economic pullbacks and recessions have followed the yield curve inversion in the past ranging between 9-12 months on average after the initial inversion. However, we are now almost 30 months post inversion which could be indicative of a the long sought after “soft landing”. Expect volatility to continue in the next couple of months but data will ultimately support the strength of the markets as the Federal Reserve commences their rate-cutting policy.
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Jobs data jolted markets on Friday with the Nonfarm Payrolls (Jul) falling well short of forecasts. Only 114k jobs were added compared to an estimated 176k. The unemployment rate rose to 4.3%.
Be sure to check out more of last week’s leading indicators here. Stay tuned for Market Thoughts.
Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:
FOR MORE INFORMATION:
If you would like to receive this weekly article and other timely information follow us, here.
Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.