Markets swung like a pendulum this week. Was the early selloff an overdone reaction or a sign of more volatility to come?
Monday S&P 500 -3.00% | NASDAQ -3.43%
Markets nose-dived to start the week and volatility measures jumped through the roof. The CBOE Volatility Index (VIX) sky-rocketed from the onset. The losses built off of poor jobs-added figures from the previous Friday and the Japanese yen carry trade. The Bank of Japan increased their short-term borrowing rate causing traders who had borrowed against the currency to sell US based assets to cover their positions. The spiral continued downward through the close but was considered an isolated event.
Tuesday S&P 500 1.04% | NASDAQ 1.03%
Markets staged a partial rebound after Monday’s plummet. Fears subsided a bit as data showing the services sector was holding at healthy levels and preliminary projections for 3rd Quarter GDP increased to 2.9% (as estimated by the Atlanta Fed GDPNow Forecast). The 10-year Treasury increased on Tuesday to 3.9% from 3.78% from the Monday purge which is the lowest seen in 8 months in 2024. Markets were pricing in a 68% chance on Tuesday of a .5% Federal Funds rate cut in September as opposed to the original .25% rate cut.
Wednesday S&P 500 -.77% | NASDAQ -1.05%
Trading lost steam mid-week as it fell further into the red. Consumer Credit (Jun) fell below forecasts indicating a slowing in spending as household reserves have dwindled to pre-pandemic levels. This is typically a sign of consumers redirecting their spending and being more price-conscious, which is a leading indicator for corporate profit margins and growth outlook.
Thursday S&P 500 2.30% | NASDAQ 2.87%
All Major indexes popped as temperatures cooled down following the release of Initial Jobless and continuing jobless claims. The news was a rebuttal from the jobs numbers announced from the previous week and a welcome one at that. If layoffs remain under control and jobless claims stay are lower levels, hopes for a soft landing will continue to be on the table. The CBOE Volatility Index (VIX) lowered to a reading of 29.47 on the day.
Friday S&P 500 .47% | NASDAQ .51%
The S&P500 and Nasdaq closed in the black to finish up the week. Markets built on the momentum of Thursday’s activity as the markets mostly recovered from the jolt earlier in the week. There was little to report on Friday as investors look ahead to important inflation data in the coming week.
Conclusion S&P 500 -.04% | NASDAQ -.18%
Markets can be known to swing (sometimes violently) in either direction and this week proved to be more volatile than others. The key takeaway this week would be that the depth of the drop didn’t hinder the end of the week recovery. The major indexes negated earlier losses as broad-based data came to light on the strength (albeit softening) of the U.S. Economy. Traders weathered the Japanese yen carry trade and got back to the fundamentals that were scheduled for release throughout the week. If the Federal Reserve does pre-empt the slowdown with one rate cut, or possibly two, there is a good chance of inflation settling to their normal rates and the economy remaining relatively unphased.
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