What happened in the markets - 28 Aug - 1 Sep 2023

Introduction

📈 A Mixed Week: The S&P 500 showed resilience, inching up by 0.6%, closing at 4,515.77. Meanwhile, the Nasdaq, known for its tech-heavy focus, posted a solid 1.8% gain. Tech stocks initially surged on the back of robust earnings from chip giant Nvidia, but later in the week, this momentum waned.

🏡 Housing Uncertainty: On the US housing front, concerns loomed as mortgage rates reached a 22-year high, painting a challenging near-term picture.

🪙 Crypto's Rollercoaster: The cryptocurrency world experienced a mix of turbulence and tranquility. Bitcoin, after a sharp decline the previous week, found some stability.

🏦 Powell's Pivot: The week took a surprising turn when US central bank chairman Powell hinted at the likelihood of more rate hikes this year. Initially, this sent stocks into overdrive on Friday.

🪙 Binance Blues: However, this optimism was tempered as markets continued to factor in potential rate cuts in 2024. Adding to the intrigue, beleaguered crypto exchange operator Binance faced another setback as Mastercard announced the termination of their co-branded crypto card partnership.

Key Takeaways

📈 The S&P 500 edged up by 0.2%, reaching 4,515.77, while the Dow Jones Industrial Average (DJIA) gained 0.3%, closing at 34,837.71.
📉The Nasdaq Composite (COMP) dipped slightly by 3.15 points to 14,031.81 but had a 3.2% weekly increase.
📈 The yield for the 10-year Treasury note (TNX) rose about 7 basis points to 4.177%.
🏦 Expectations are growing that the Federal Reserve will keep rates steady for the rest of the year.

Stocks Rise Amid Easing Inflation Concerns and Positive Jobs Report

US stock markets closed the week on a strong note, driven by encouraging signs on the inflation front. Although August was the first month with negative stock returns since February, growth stocks received a boost as longer-term interest rates decreased, narrowing the gap between smaller-cap and large-cap stocks. Market activity remained relatively muted, but trading volumes picked up as the summer vacation season came to a close.

August's job report indicated 187,000 new US jobs, exceeding downwardly revised figures for June and July. However, the longer-term trend shows a slowdown, with August's job additions well below the monthly average of the past 12 months. The unemployment rate also increased from 3.5% to 3.8%.

Curiously, it appeared that in the market's eyes, bad news for the economy translated to good news for stock prices. For instance, the S&P 500 recorded its best one-day gain since June following news of an unexpected 338,000 job openings decrease in July, the lowest level since March 2001. Job quits, often considered a reliable labor market indicator, also fell significantly.

JOLTS (job openings) and quits rate both decelerate to post pandemic lows. *Source: FactSet*

US Bond Yields and Jackson Hole Symposium

US bond yields fluctuated throughout the week, with the yield for the 10-year US Treasury note initially increasing but ending modestly lower for the week. Recent labor market data signaled a slowdown, with new job openings falling to 8.8 million in July, the lowest level in over two years. Additionally, the job quits rate dropped to its lowest point in 30 months, suggesting fewer attractive job opportunities.

At the Jackson Hole symposium, Federal Reserve Chair Jerome Powell stated that US inflation remains too high, and the central bank must either maintain or raise rates to bring inflation down to its 2% target. This strengthened expectations that the Fed might not raise rates again this year. According to the CME FedWatch tool, the probability of the Fed staying on hold for the rest of the year increased significantly, from 44.5% to 59.8%.

On August 31, the Fed's preferred inflation gauge, the personal consumption expenditure (PCE) price index, showed core PCE, which excludes volatile food and energy prices, rising 4.2% year-on-year for July, slightly up from June's 4.1%.

Markets expect Fed rate cuts to start in mid-2024 (%). *Source: CMR FedWatch*

Stocks on the Move

Several notable companies saw significant changes in their stock prices last week due to earnings reports, analyst ratings, or other news:

📉 Broadcom (AVGO) saw its shares decline by over 5% due to a disappointing quarterly revenue forecast, despite exceeding expectations for the last quarter.
📈 Dell Technologies (DELL) enjoyed a 21% increase in its shares after beating Wall Street forecasts with its quarterly results.
📈 MongoDB (MDB) experienced a 3% increase in its shares following unexpectedly strong earnings and revenue for the previous quarter.
📈 Lululemon Athletica (LULU) reported earnings that surpassed analysts' expectations, leading to a 6% increase in its shares.
📉 Tesla (TSLA) saw its shares fall by 5% following reports of price reductions for some models in China.
📈 Vale (VALE) witnessed a more than 6% increase in its shares after JPMorgan upgraded its stock to "overweight" from "neutral," citing attractive valuations.
📉 VMware (VMW) saw a 2.8% decline in its shares after posting mixed second-quarter results, with earnings per share exceeding expectations but revenue falling short.
📉 Walgreens Boots Alliance (WBA) shares dropped by over 7% following the departure of Roz Brewer as the company's CEO and board member.

What to Expect in the Markets This Week

This week's trading will be shortened due to the holiday as U.S. equity markets will be closed on Monday for Labor Day. Since most S&P 500 companies have already reported their earnings, the market is expected to be relatively quiet.

Market watchers can look forward to PMI surveys from S&P Global and the Institute for Supply Management (ISM), the Fed's latest Beige Book, and an inflation reading from China. In the coming week, we can also expect a few more company results, including GitLab Inc. (GTLB) and Zscaler Inc. (ZS) on Tuesday, and Kroger Co. (KR) on September 8, which happens to be one of the largest supermarket chains in the United States.

The Fed's Beige Book

So, on Wednesday the Federal Reserve is going to release its latest Beige Book. This is basically a report published eight times a year that gives us an overview of how the economy is doing in all 12 Federal Reserve districts.

The latest issue is expected to describe an economy that's still going strong despite some challenges. Consumer spending, which makes up more than two-thirds of the US gross domestic product (GDP), has been doing pretty well despite the Fed's rate hikes and high inflation. Meanwhile, unemployment is still at some of the lowest levels we've seen in decades.

Prices in China

Next Saturday, China is dropping some new deets on inflation figures for August. It's a pretty big deal, since they were in deflation last month and consumer prices went down 0.3% from a year ago. But wait, there's hope - they're looking to bounce back with a 0.1% increase from last year. China's economy is going through some rough times, with a slowdown due to high debt, low exports, a bust in the property market, and lots of young people without jobs. When there's deflation, people hold off on buying things because they expect prices to go down in the future. This directly affects businesses and their profits, leading to layoffs and even less spending from households. It's like a downward spiral that's super hard for governments and banks to fix.