Market Review 14th August 2024

U.S. Markets Rise as CPI Data Reinforces Rate Cut Hopes

On Wednesday, August 14, 2024, the stock and bond markets showed positive momentum following the latest U.S. Consumer Price Index (CPI) report. Investors had been eagerly awaiting this critical data release, which ultimately met expectations, allowing markets to gain footing late in the day. The major indices in both Canada and the U.S. closed in positive territory, with the S&P 500 marking its fifth consecutive day of gains. The market's tone has improved after a recent pullback, with the S&P 500's year-to-date gain back above 14% and the TSX up 8% for the year.

Key Market Movements

- Dow Jones Industrial Average: Rose by 242 points (0.61%) to close at 40,008.39.

- S&P 500: Increased by 0.38% to finish at 5,455.21, marking its fifth straight positive close.

- Nasdaq Composite: Gained 0.03% to close at 17,192.60.

- Bonds: Slightly higher, driving 10-year benchmark interest rates lower.

- Sector Performance: Cyclical sectors, including financials and energy, were among the top gainers, while communication services underperformed.

Inflation Trends

The U.S. CPI report for July indicated that inflation is continuing to trend in the right direction, albeit slowly. Key highlights include:

- Headline CPI: Increased by 0.2% month-over-month, bringing the year-over-year change to 2.9%. This marks the second consecutive month with inflation below 3%, the lowest since March 2021.

- Core CPI: Rose by 3.2% year-over-year, a 40-month low, signaling a gradual but favorable path toward moderation.

Implications for Monetary Policy

- The latest CPI data supports the expectation that the Federal Reserve may commence rate cuts at its September meeting. However, the slow pace of inflation decline suggests that the Fed is likely to start with a modest 25 basis point (0.25%) cut, with further rate reductions depending on upcoming economic data.

Consumer Spending Outlook

As inflation trends in a favorable direction, attention now shifts to consumer spending, a critical component of the soft-landing narrative that has supported the stock market's rally in 2024. The upcoming U.S. retail sales report for July will provide fresh insights into consumer behavior. Expectations are for solid spending growth, particularly in leisure, hospitality, entertainment, and dining out. While the pace of consumer spending may slow, it is not expected to falter significantly, helping to sustain economic expansion.

Sector Highlights and Notable Performers

- Kellanova: Shares surged more than 7.8% following the announcement that snack maker Mars will acquire the company in a $36 billion deal.

- Mercury Systems: The aerospace and defense technology stock soared over 19% after reporting stronger-than-expected earnings, marking its best one-day performance since April 2009.

- Charles Schwab: The stock rose nearly 5% after reporting a significant increase in new brokerage accounts and core net new assets in July.

Market Sentiment and Volatility

Summer vacations and lighter staffing on trading desks may have contributed to recent market volatility. However, underlying economic fundamentals and corporate earnings remain stable, suggesting that the current fluctuations are typical for this time of year. Investors are expected to return to the markets with renewed focus after Labor Day, as attention shifts to the upcoming election season and other economic indicators.

Conclusion

The stock market's performance on August 14, 2024, was characterized by cautious optimism as inflation data met expectations and supported hopes for a gradual easing of monetary policy. While some sectors outperformed others, the overall market mood was positive, with investors continuing to bet on a soft landing for the economy. As we move forward, attention will turn to consumer spending and the Fed's next steps, both of which will play critical roles in shaping market trends in the coming months.

Key Takeaways

- Positive Market Performance: Major indices closed higher, with the S&P 500 achieving its fifth consecutive positive session.

- Inflation Moderation: The July CPI report showed inflation trending lower, supporting expectations for a Fed rate cut in September.

- Consumer Spending in Focus: Upcoming retail sales data will provide further insights into the health of the consumer and the broader economy.

- Sector Winners and Losers: Financials and energy sectors outperformed, while communication services lagged.

- Market Sentiment: Summer volatility is expected to subside as investors return to the markets with a focus on upcoming economic data and election developments.

References

- U.S. Bureau of Labor Statistics

- Dow Jones Industrial Average Data

- Nasdaq Composite Index Data

- S&P 500 Index Data

- Federal Reserve Communications

- Company Earnings Reports (Kellanova, Mercury Systems, Charles Schwab)

This comprehensive summary of the stock market for August 14, 2024, highlights key market movements, inflation trends, consumer spending outlooks, and notable sector performances. Investors should continue to monitor economic data and corporate earnings reports as they navigate the remaining months of 2024.

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