08|31|2021

Telegraphed Target | August 27, 2021

AUTHOR: Jason Roque, CFP®, APMA®, AWMA®
TITLE:   Investment Adviser Rep – CCO
TAGS: S&P 500, NASDAQ, CPI, PPI, Oil, Retail Sales, Sentiment
  

Markets lost ground for the second week. Does this say more about the last two weeks or the week ahead?

Monday                       S&P 500 0.11% | NASDAQ 0.41%

Markets opened the week in a muted tone. There was very little movement as Consumer Price Index (CPI) data was awaited on Tuesday.

Tuesday                        S&P 500 1.12% | NASDAQ 1.54%

CPI data for February showed inflation inching up slightly. Markets opened in the red on the news, but an earnings beat by Oracle allowed equities to march higher.

Wednesday                 S&P 500 0.19% | NASDAQ 0.54%

Crude oil inventories fell when a surplus was expected, which will further support higher prices for energy. Interest rates climbed on the back of the higher than expected CPI data from Tuesday. Growth stocks lagged as the data implies the Federal Reserve Board (FRB) will be less likely to cut rates.

Thursday                     S&P 500 0.29% | NASDAQ 0.30%

The Producer Price Index (PPI), a wholesale inflation gauge, rose in February to 1.6%. Retail sales advanced less than expected and initial jobless claims remained benign. A strong jobs market with firming inflation does not bode well for future rate cuts. Markets sold on the news, though not aggressively, as hope remains for FRB rate cuts later in the year.

Friday                          S&P 500 0.65% | NASDAQ 0.96%

Consumer sentiment is projected to fall to 76.5 in March from 76.9 in February. While lower, February and March are the first readings in the 70’s since August of last year. The week closed out on a sour note as commodity prices rise with inflation data. Further concerns mount that the inflation fight may have longer to go before a rate cut.

Conclusion                  S&P 500 0.13% | NASDAQ 0.70%

This is the first back-to-back losing weeks for the market in 2024. This leads to an FRB meeting week where guidance about potential future rate cuts will be hotly watched. Not only is the FRB meeting next week, but there is very little in the way of economic data for the week. This puts all the more focus on the FRB. 

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The Federal Reserve is telegraphing their moves. Does this put a target on the back of markets?

Monday

Markets opened the week in the green. The S&P 500 continued from Fridays gains and rose 0.85% on the day. This was in spite of softening PMI data. Specifically concerning was the fall in services data as that makes up the majority of economic activity in the US. The fall, however, was to a level that is still expansionary. It just means we should see a lower level of GDP in the 3rd quarter. Good news on the day included a rise in existing home sales, by 120K units for the month.

Tuesday

The S&P 500 rose marginally on Tuesday. Economic data was fairly light and the focus was on Federal Reserve Board (FRB) Chair Powell’s speech coming on Thursday. New home sales did increase from the prior month by 1.0% (July), missing expectations of a 3% increase.

Wednesday

In another muted day of trading, The S&P 500 was up 0.25%. Again, focus intensified on tomorrow’s Jackson Hole Symposium speech by the FRB. Core durable goods orders, a good indicator of future demand, rose 0.7% (July). All week, FRB members have been sounding the call for tapering of the FRB bond buying program. This has kept what would have been a strong week, rather tepid.

Thursday

The S&P 500 fell 0.65% on Thursday. This came as the FRB Chair confirmed concerns regarding tapering. They do intend to begin tapering later this year. Assuming the economy maintains I’s trajectory of growth.

Friday

In a re-occurring theme, the S&P 500 made back all of Thursdays losses and then some on Friday. It rose nearly 1%. Core PCE pricing was released Friday showing that inflation has increased 3.6% YoY (July). The black mark on the day was that consumer sentiment preliminary reports is reading at 70.3. A large drop from last month. This is concerning for future spending expectations.

Conclusion

The S&P 500 rose 1.52% in a week where the FRB confirmed tapering of bond purchases will occur later this year. The telegraphed nature of Chair Powell’s behavior should allow market shocks from FRB activity to remain muted. A major part of his statement was that tapering is contingent on continued economic strength, which appears to be fading. A tightening FRB is unlikely in an environment with waning economic production.

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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.