Market Review 20th August 2024
Simplify the craziness
DAILY REVIEW
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4 min read
Stock Market Summary for August 20, 2024
The U.S. equity markets experienced a minor pullback on Tuesday, August 20, 2024, snapping an impressive eight-day winning streak for both the S&P 500 and Nasdaq Composite. Despite the recent sprint in stock prices, the markets took a breather, reflecting a more cautious stance among investors ahead of key economic events later in the week.
S&P 500: The S&P 500 closed slightly lower, slipping 0.2% to 5,597.12. This marked the end of its longest winning streak since late 2023.
Nasdaq Composite: The tech-heavy Nasdaq Composite also dipped 0.33% to 17,816.94, halting its eight-day upward trajectory.
Dow Jones Industrial Average: The Dow Jones Industrial Average saw a minor decline of 61.56 points, or 0.15%, closing at 40,834.97.
Market Performance and Volatility
The recent rally was fueled by strong corporate earnings and positive economic data, which helped soothe recession fears that had been looming earlier in the month. The volatility index (VIX), a key gauge of market fear, remained subdued, falling below 16 after spiking to over 65 earlier in August.
Volatility: The CBOE Volatility Index (VIX) dropped significantly from its early August highs, signaling reduced market stress.
Market Sentiment: Investor sentiment has shifted back to fundamentals, focusing on corporate earnings and economic data.
Federal Reserve's Influence and Upcoming Economic Data
Investors are closely watching the Federal Reserve's annual Jackson Hole Economic Symposium, scheduled later this week, where Fed Chair Jerome Powell is expected to provide insights into the central bank's monetary policy outlook. Markets are particularly interested in any hints regarding future interest rate cuts.
Interest Rates: The market is pricing in a potential interest rate cut by the Fed, with debates focusing on whether it will be a 0.25% or 0.50% reduction.
Economic Data: Traders are also anticipating the release of the Fed's July policy meeting minutes, which could provide additional clues on the central bank's next moves.
Sector Performance: Health Care, Consumer Staples, and Energy
The market's defensive posture was evident as health care and consumer staples stocks led the gains, reflecting a cautious approach by investors. On the other hand, energy stocks, both traditional and solar, underperformed.
Health Care: The health care sector saw strong performance, with investors favoring its defensive characteristics.
Consumer Staples: Consumer staples also outperformed, indicating a shift towards safer, income-generating stocks.
Energy: The Energy Select Sector SPDR Fund (XLE) declined by 2%, while the Invesco Solar ETF (TAN) also fell by 2%. This synchronized drop is unusual, as these two sectors typically move independently.
Bonds and Interest Rates: A Steady Hand
Interest rates remained relatively stable, with the 10-year U.S. Treasury yield hovering just above 3%. The Canadian 10-year Government bond yield also remained steady, reflecting anticipation of upcoming Fed commentary and economic data releases.
10-Year U.S. Treasury Yield: The yield has declined sharply in recent weeks, dropping around 40 basis points as inflation moderates and economic momentum slows.
Canadian 10-Year Bond Yield: The yield has similarly decreased by 30 basis points in the past month, reflecting global economic trends.
Canadian Inflation and Economic Outlook
In Canada, the July Consumer Price Index (CPI) report indicated that inflation has slowed to its lowest rate since early 2021, with a 2.5% year-over-year increase. This moderation in inflation is broad-based, with significant easing in food and shelter price growth.
CPI Report: The slowing inflation is encouraging, particularly in the shelter segment, which has been a significant contributor to rising prices in recent years.
Bank of Canada: The central bank is expected to continue its rate-cutting cycle gradually, given the broad-based slowdown in inflation.
Key Stock Movements: Palo Alto Networks, Boeing, and More
Several key stocks made notable moves during Tuesday's session, driven by earnings reports, regulatory filings, and sector-specific developments.
Palo Alto Networks (PANW): Shares of the cybersecurity firm surged over 7% after it reported strong fiscal fourth-quarter results and announced a $500 million stock buyback. The stock was the best performer in the S&P 500 for the day.
Boeing (BA): Boeing was the biggest loser in the Dow Jones Industrial Average, falling 4.6% after revealing a failure in the engine mounting structures of its 777X test fleet.
Bank of America (BAC): The stock slid 2% following a regulatory filing that showed Warren Buffett's Berkshire Hathaway continued to reduce its stake in the bank.
XPeng (XPEV): The Chinese electric vehicle maker's shares dropped 7% after issuing lower-than-expected third-quarter revenue guidance.
Lowe’s (LOW): The home improvement retailer saw its stock decline by 1% after reporting weaker-than-expected revenue and lowering its annual profit outlook.
Market Outlook: Expect Range-Bound Trading
Wells Fargo's senior global market strategist, Sameer Samana, suggested that the market is likely to remain range-bound until the November elections. Investors are advised to be dynamic in their portfolio positioning, adjusting allocations based on market movements.
Emerging Markets and Consumer Discretionary: Samana recommends reducing positions in emerging markets and the consumer discretionary sector if stocks approach all-time highs.
Small-Cap Stocks: On the other hand, small-cap stocks could be attractive if the market pulls back further.
Conclusion: A Market in Transition
Tuesday's market action reflects a broader theme of transition, with investors reassessing economic fundamentals, central bank policies, and corporate earnings. As the market digests these factors, we expect continued volatility, especially as key events such as the Federal Reserve's Jackson Hole Symposium and upcoming economic data releases play out.
References
CME FedWatch Tool
CBOE Volatility Index
U.S. Bank Wealth Management
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