Market Review 19th August 2024

Stock Market Summary: August 19, 2024

The U.S. stock markets closed on a high note today, marking the eighth consecutive session of gains for the S&P 500 and Nasdaq. This ongoing rally highlights the market's resilience as investors turn their attention to the upcoming Federal Reserve symposium in Jackson Hole, Wyoming. Here’s a detailed look into today’s market performance, sector movements, economic indicators, and what lies ahead.

Major Indices Close Higher

S&P 500 and Nasdaq Continue Their Winning Streak

- S&P 500: The index added 0.97%, closing at 5,608.25.

- Nasdaq Composite: The tech-heavy index surged 1.39%, ending the day at 17,876.77.

- Dow Jones Industrial Average: The Dow rose by 0.58%, closing at 40,896.53.

Today’s gains represent the eighth straight positive session for both the S&P 500 and Nasdaq, a first for 2024. This streak is reflective of strong market sentiment, driven by robust earnings reports and anticipation of potential Federal Reserve rate cuts.

Sector Performance: Technology and Communication Services Lead the Way

- Technology Stocks: Tech giants such as NVIDIA, Tesla, and Apple led the charge, contributing significantly to the day’s gains. This sector’s strong performance is a continuation of the trend seen throughout the year, where technology has consistently outpaced other sectors.

- Communication Services: Companies within this sector, including Meta Platforms and Alphabet Inc., also saw substantial gains, reflecting a risk-on sentiment among investors.

- Broad Market Rally: While technology and communication services were the primary drivers, today’s rally was broad-based, with nearly all sectors seeing positive movement. The only exceptions were minor pullbacks in defensive sectors like Utilities and Consumer Staples, which typically underperform during risk-on periods.

Bond Yields and Currency Movements

- U.S. Treasury Yields: The 10-year U.S. Treasury yield hovered around 3.88%, showing mixed signals as investors weighed the likelihood of upcoming rate cuts.

- Government of Canada Yields: In Canada, the 10-year yield was slightly lower at approximately 3.07%, aligning with global trends of declining yields amid expectations of monetary easing.

- Currency Markets: The U.S. dollar weakened against major currencies, reflecting a broader shift in investor sentiment towards riskier assets as inflation fears continue to recede.

Global Market Overview

Asia: Mixed Performance Ahead of Key Economic Data

- China: Chinese markets showed mixed performance ahead of new inflation data and potential central bank interest-rate decisions. Concerns over slowing economic growth and reduced demand from China also impacted global commodity prices, particularly oil.

- Japan: Japanese equities traded slightly higher, supported by a weaker yen which bolstered export-oriented stocks.

- European Markets: European indices closed higher, continuing their positive momentum from last week. Strong corporate earnings and easing inflation in the Eurozone contributed to today’s gains.

Commodities Market: Oil and Gold

- Crude Oil: West Texas Intermediate (WTI) oil prices dipped due to concerns over reduced demand from China, one of the world's largest consumers of crude. This marks a continuation of the recent downtrend in oil prices as global economic uncertainties loom.

- Gold: Gold prices surged to a new record high, reflecting investor demand for safe-haven assets amid ongoing economic uncertainties. The rise in gold also indicates concerns over potential market volatility following the Federal Reserve’s symposium later this week.

Corporate Earnings: Strong Season Winds Down

Second-Quarter Earnings Overview

With 93% of S&P 500 companies having reported their second-quarter earnings, the season is winding down with impressive results:

- Earnings Beat Rate: Approximately 78% of companies exceeded analyst expectations, with an average upside surprise of 3.5%.

- Year-Over-Year Growth: Earnings growth for the quarter stands at 10.9%, the highest since Q4 2021.

- Sector Performance: Nine out of the 11 sectors in the S&P 500 have reported year-over-year earnings growth, with technology and communication services leading the way.

Market Impact

The broadening of earnings growth beyond just a few sectors is a positive sign for the market’s sustainability. As lagging sectors start to catch up, this could provide further support for the ongoing rally, particularly if economic data continues to support a soft landing scenario.

Federal Reserve Symposium: Investors Await Clarity on Rate Cuts

Jackson Hole Symposium: What to Expect

All eyes are now on the Federal Reserve’s annual monetary-policy symposium in Jackson Hole, Wyoming, set to commence on Thursday. Fed Chair Jerome Powell’s speech on Friday will be the highlight, as investors seek insights into the Fed’s future rate policy.

Market Expectations

- Rate Cuts: The bond market currently anticipates a series of rate cuts, totaling 1.75% over the next 12 months. Speculation is rife that the Fed could start cutting rates as early as September, given the recent cooling in the labor market and moderation in inflation.

- Potential Market Volatility: While the market has recovered from earlier recession fears, Powell’s speech could reintroduce volatility, especially if the Fed’s outlook diverges from market expectations.

Bank of Canada: Similar Path Expected

Like the Fed, the Bank of Canada is also expected to continue cutting rates in response to similar economic conditions. Investors will be closely watching the Fed’s actions, as they will likely influence the Bank of Canada’s policy decisions.

Market Commentary and Analysis

Investor Sentiment: Bullish with Caution

Despite the recent rally, market experts caution against expecting a straight-line ascent. UBS Private Wealth Management’s Greg Marcus highlighted the likelihood of continued volatility, driven by conflicting economic data and ongoing recessionary debates.

Canaccord Genuity’s Take: Broad Market Participation Needed

Canaccord Genuity analysts noted that while mega-cap technology stocks have driven much of the market’s gains this year, a sustainable advance requires broader market participation. The recent pause in market breadth could be a warning sign if smaller-cap stocks don’t catch up.

Oppenheimer’s Outlook: Powell’s Speech Could Stir the Pot

Oppenheimer’s chief investment strategist, John Stoltzfus, warned that Powell’s remarks could reintroduce market volatility. With expectations for a 50 basis-point rate cut in September, any hesitation from Powell could trigger a sell-off, particularly among highly leveraged players.

Roth Capital’s Perspective: Small-Cap Stocks at a Critical Juncture

Roth Capital Partners’ JC O’Hara suggested that small-cap stocks, as represented by the Russell 2000, could be a leading indicator for broader equity markets. If small caps continue to rally, it could signal a shift towards a more risk-on environment. However, failure to sustain these gains could dampen the overall market sentiment.

Economic Data and Consumer Spending

Credit Card Spending: A Mixed Bag

Recent data from Bank of America showed that total credit card spending per household was down 1% year-over-year for the week ending August 10. While this represents a slight improvement from the previous week, it highlights ongoing consumer caution.

- Sector Breakdown: The most significant increases were seen in department store, home improvement, and furniture spending, while transit and gas spending saw declines.

Retail Sales and Jobs Data: Boosting Market Confidence

Last week’s retail sales and initial jobless claims data provided a much-needed boost to market confidence. Strong retail sales suggest that consumer spending remains resilient, while the moderation in jobless claims points to a cooling labor market that is still relatively healthy.

What’s Next: Key Events to Watch

Fed Meeting Minutes

The minutes from the Federal Reserve’s most recent meeting, due on Wednesday, will be closely scrutinized for any hints about the central bank’s future policy moves. Investors will be looking for clues on the timing and magnitude of potential rate cuts.

Jackson Hole Symposium

The symposium in Jackson Hole is expected to dominate the market narrative for the rest of the week. Powell’s speech will be pivotal in setting the tone for the remainder of the year, particularly in terms of interest rate expectations.

Democratic National Convention

The Democratic National Convention, which kicks off today, could also have an impact on market sentiment, particularly if any significant policy announcements are made.

Conclusion: A Market in Transition

The U.S. stock market’s continued rally reflects a complex interplay of factors, including strong corporate earnings, easing inflation, and shifting expectations for monetary policy. While the market has shown impressive resilience, the path forward is likely to be marked by volatility as investors navigate an evolving economic landscape.

As we move into the latter half of 2024, the focus will remain on the Federal Reserve and its approach to balancing inflation with economic growth. The upcoming Jackson Hole symposium will be critical in shaping market expectations, and any surprises could lead to significant market movements.

Investors are advised to stay cautious, diversify their portfolios, and keep a close eye on economic indicators that could signal shifts in the market’s direction.

References

1. CNBC. (2024). Stocks close higher, extending recovery rally. Retrieved from [https://www.cnbc.com/2024/08/19/stock-market-news.html](https://www.cnbc.com/2024/08/19/stock-market-news.html)

2. Reuters. (2024). Federal Reserve Chair Powell's Jackson Hole speech could revive market volatility. Retrieved from [https://www.reuters.com/2024/08/19/powell-jackson-hole-speech.html](https://www.reuters.com/2024/08/19/powell-jackson-hole-s