What happened in the markets - 14-18 Aug 2023
Introduction
Things have been a bit shaky lately. The FOMC's meeting minutes hinted that future interest rate hikes are still on the table, causing a bit of uncertainty around the U.S. economy. Meanwhile, China's economy is still slowing down, which could mess with global growth. And just to add to the mix, Evergrande, a big Chinese property player, filed for bankruptcy protection in the U.S. That didn't do wonders for the market mood.
And don't even get us started on the crypto market. Bitcoin took a 7.2% tumble on Thursday. To sum it up, we're riding a downward wave in the markets.
Key Takeaways:
Stocks took a hit for the third week straight, with the S&P 500 and NASDAQ dropping over 2%.
Good news from the consumer front - U.S. retail sales report came in stronger than expected.
The FOMC's meeting minutes said "future rate hikes are still on the menu," keeping the economy guessing.
August's Slide
After a three-week winning streak that ended in late July, coinciding with the halfway point of the quarterly earnings reporting season, the major U.S. stock indices took a bit of a tumble. The S&P 500 and NASDAQ both recorded their third straight weekly declines, with a drop of over 2%.
Now, you'd think that when interest rates rise, growth stocks would take the biggest hit. This is because a higher discount could be applied to their future earnings. But, plot twist - the Russell 1000 Growth Index actually outperformed its value counterpart during this period. The ones that really felt the pinch were the small-cap stocks.
Analysts noted that the market's swings might have been amplified by program trading, technical factors, and the lighter trading volumes that are typical of the summer months.
S&P 500 Index Year-To-Date
Source: FactSet
Small-caps Lose Their Shine
Small-cap stocks, those sensitive to local economic vibes, were shining stars recently. They shot up 14% from May to July, showing off a strong economy. But August saw them giving back about half of that gain as optimism waned. It didn't help that the market vibe dipped, thanks to worries about China's growth slowdown and rising U.S. Treasury yields.
Small caps relative to the Dow
Source: FactSet
Retail Resilience
The latest U.S. retail sales report was like a retail party that outshone economists' predictions. In July, retail sales jumped by 0.7% compared to the previous month, beating the expected 0.4% consensus. And guess what? Out of the 13 retail categories, 9 saw growth. Restaurants and bars had a blast with an impressive 11.9% boost, showing consumers are ready to dine out. Online shopping kept rocking, too, with a 10.3% surge. But, whoa, gas stations faced a 20.8% nosedive, probably due to less travel and changed commuting habits.
Hold on, the data dance doesn't stop there. This week brought up an interesting thought: maybe we're looking at a "no landing" scenario. Picture this - the economy cruising without a bumpy slowdown or a harsh recession.
July's industrial production was like a firework, skyrocketing by 1.0%, almost three times more than what was expected. It's the biggest jump since January, thanks in part to utilities ramping up to tackle the July heatwave. And the mid-Atlantic region's manufacturing activity? It did a victory lap, marking the first expansion in 14 months. Even housing starts joined the party, rising higher than folks thought.
Now, buckle up for some Fed talk. The release of the Federal Reserve's meeting minutes on Wednesday had folks talking about growth signals. Some said a slower GDP growth could balance out supply and demand. But here's the twist - investors seemed to read the minutes as hawkish, meaning they're not ruling out more aggressive moves.
Fed Rate Riddle
Let's dive into the Federal Reserve's recent meeting minutes released on Wednesday. It's like a tug of war among policymakers. Some say "go easy" on extra interest rate hikes after the one approved at the meeting. They're worried that too much hike action could put a negative spin on the economy. But on the flip side, there are those waving the inflation flag and hinting at more hikes down the road. It's like a financial seesaw! This Fed back-and-forth shows they're dealing with a whole bunch of complexities while sorting out the right money moves.
The Upcoming Jackson Hole Show
Investors and economists have their eyes peeled for the annual economic policy symposium hosted by the U.S. Federal Reserve. It's the place to be from August 24th to August 26th in Jackson Hole, Wyoming. And guess who's stealing the show? Federal Reserve Chair Jerome Powell is strutting his stuff as a keynote speaker. This symposium is where the big shots - central bankers, policymakers, and money maestros - gather to chat about money moves and the economic forecast. Hold tight, Gotraders, because this is like a backstage pass to understanding where the U.S. money river is flowing! 🌊
Stocks on the Radar
Chinese stocks like Alibaba Group (BABA) took a hit, along with Baidu (BIDU), JD.com (JD), NetEase (NTES), Nio (NIO), PDD (PDD), and XPeng (XPEV).
Applied Materials (AMAT) shone with nearly 4% growth after a promising forecast.
Cisco Systems (CSCO) kept its cool with a 1% gain.
John Deere (DE) had a 5.6% drop despite good results, thanks to concerns about future demand.
Nvidia (NVDA) dipped 0.3% ahead of its earnings report, leaving folks guessing.
Palo Alto Networks (PANW) ticked up 1% as investors waited for its results.
Ross Stores (ROST) had a 5% boost after rocking its earnings.
Walmart (WMT) gained 1.4% on positive results and strategy.
Mark your calendars for next Tuesday! Medtronic and Lowe's will be sharing their quarterly reports, giving us a peek into the health care and home improvement sectors' performance. These insights could stir up the market vibes. Keep an eye out, Gotraders! 🚀
