Market Synopsis: Stocks Down, Treasury Yields Up, Commodities Flat, Dollar Higher, Crypto Flat
Past Week Events:
This Week's Events:
U.S. Leading Economic Index Declines in August
The Conference Board's Leading Economic Index (LEI) for the U.S. dropped by 0.4% in August 2023 to 105.4, marking its 18th consecutive month of decline. This trend suggests potential economic challenges ahead, possibly hinting at a recession. Factors like higher rates, and tighter credit situations contributed to the decline. They anticipate that the U.S. GDP will increase by 2.2% in 2023, slowing to 0.8% in 2024. Meanwhile, the Coincident Economic Index (CEI) and the Lagging Economic Index (LAG) each noticed a 0.2% rise in August.
Federal Reserve's Rate Decision
The Federal Reserve kept interest rates steady in the 5.25%-5.5% range but hinted at a possible rate hike by year-end. This aligns with market expectations and marks a continuation of the policy tightening that began in March 2022. However, the decision who were expecting the “higher for longer” narrative to potentially disappear with a rate cut. The decision affected stock markets, with indices like the S&P 500 and Nasdaq seeing declines. The Fed's "dot plot" suggests one more rate hike this year and two rate cuts in 2024. The central bank remains cautious, awaiting more evidence on inflation trends before making further moves.
Next Week:
PCE measures how much consumers are spending for their goods and services. This data point reveals information about how inflation is affecting the market, as this data point excludes random volatility in price changes of specific goods to specifically target inflation’s impact. This data point is very similar to CPI, and like CPI is very important to measuring inflation. Next week’s PCE index will set the tone for the end of the week, as it is released on Friday. Core PCE is forecasted to go from the last report of 4.2% year-over-year month to 4.0%.
Consumer Confidence is released next week. Consumer confidence indicates consumers' confidence with spending their money. As concerns of a recession have faded and optimism has spurred as of late, consumer confidence has been on the incline, but is still relatively low due to persisting inflation.
Fed Chairman Powell speaks next week. Last week was disappointing for the market, as the Federal Reserve reestablished their hawkish stance on interest rates and monetary policy as inflation has continuously proved to be stubborn. His insight will set the tone for the week and will have an obvious effect on the market.
Market Snapshot:
This week, the financial markets grappled with the realization that the Federal Reserve's stance on interest rates might not be as transient as previously believed. For months, market participants had been told that the Fed’s aim to maintain rates "higher for longer” may dissipate. However, this week's events seemed to solidify this stance, with the market adjusting its expectations accordingly. Amidst this backdrop, equities faced significant pressure. Small Caps and the Nasdaq, which includes many tech giants, bore the brunt of the week's downturn, with the S&P not far behind. The Dow managed to fare slightly better, but still ended the week with a decline of around 2%. In the bond market, Treasury yields rose across the board. The dollar, meanwhile, continued its upward trajectory, marking its eighth week of gains in the last nine. The cryptocurrency market remained relatively stable, with Bitcoin hovering around the $26,500 mark. In the commodities sector, oil prices saw significant intraweek fluctuations but ultimately settled around $90.50 for WTI. Gold, on the other hand, experienced some volatility, breaking below its 200-day moving average before rallying back.
Quip of the Week:"If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks." - John C. Bogle, founder of Vanguard
U.S Equities:
Indexes(Week)
SPX 4,320.06(-2.93%), DJIA 33,963.84(-1.89%),
NASDAQ 13,211.81(-3.62%), RUT 1,776.50(-3.82%)
Sectors:
This was a notably poor week for the market, with the top performing sector ending more than -1.00% and the worst performing sector in the -6% range. With the Federal Reserve reestablishing the intent to continue interest rate hikes to the end of the year, sectors like Consumer Discretionary who are extremely reactive to interest rate decisions took a significant toll. This explains their position at the bottom of the ladder, not to disregard the fact that every sector ended negative this past week.
Treasuries:
Treasury yields rose, with the short-end of the yield curve underperforming. The spike in yields mid week can be attributed to the Federal Reserve's interest rate decision. The Fed’s decision to pause and its “higher for longer” rhetoric spooked investors and sent yields up.
Commodities:
Oil
Goldman Sachs has revised its oil price forecast
Goldman Sachs Foresees $100 Oil Amid Renewable Transition Hiccups. The energy transition, aimed at moving away from hydrocarbons, is facing challenges. Electric vehicle (EV) sales have not increased despite rising gas prices. Offshore wind projects are being canceled in Europe and the U.S., while oil and gas firms report significant profits. Oil producers are being cautious with production growth due to the transition push. The focus on renewables has led to higher energy prices in Europe and the U.S., with the transition from hydrocarbons being questioned.
Gold
Gold ended the week practically where it started, for it saw a slight rally for the first half of the week but then dipped the second half of the week amidst interest rate pressures. High interest rates typically negatively impact gold as it is a non-yielding asset, and the Federal Reserve and many banks around the world reestablished their intent to continue rate hikes. Despite this pressure, gold was able to end the week neutral.
Crypto:
BTC -26,538, -0.84% ETH - 1,591, -2.78%
BTC Graph (5-day)
Despite U.S equities taking a hit because of recent news indicating hawkish monetary policy, BTC was able to stay above the crucial 26000 mark that many consider to be a breaking point. BTC is particularly reactive to interest rates, and so this was surprising but good news for crypto investors; its counterpart ETH was not able to resist the selloff as well as Bitcoin, as it saw approximately a 2.75% decline.
Europe:
Stoxx 600- 453.26, -1.88% DAX- 15,557, -2.12% FTSE 100 -7,683, -0.36%
DAX Chart (5-day)
Following the actions of the Federal Reserve, the Bank of England decided to pause interest rates, but also following the Federal Reserve, reestablished its intent to hike interest rates until the threat of inflation is completely eradicated. Data has shown contraction in England’s economy, but inflation still remains elevated at not ideal levels for the Bank of England.
Asia:
XJO (Australia)-7,068, -2.89% Shanghai 180 Index-8,105, 1.08% Nikkei 225- 32,402, -3.37%
XJO Chart (5-day)
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