Market Review 22nd August 2024

Simplify the craziness

DAILY REVIEW

5 min read

As the markets closed on Thursday, August 22, 2024, U.S. and Canadian stocks took a downturn, with technology stocks leading the losses. Investors appeared cautious as they awaited Federal Reserve Chair Jerome Powell's highly anticipated speech at the Jackson Hole Economic Symposium. Rising Treasury yields and mixed economic signals contributed to the negative sentiment, leading to a noticeable slide in major indexes.

Market Overview

Key Index Performance

S&P 500: Dropped 0.89% to close at 5,570.64.
Nasdaq Composite: Fell 1.67% to 17,619.35.
Dow Jones Industrial Average: Decreased 0.43% or 177.71 points, closing at 40,712.78.

Sector Highlights

Technology Stocks: Led the declines, with the sector falling over 2%. Notable tech names like Intel, Tesla, and NVIDIA saw significant drops.
Energy Sector: Outperformed other sectors, bolstered by rising oil prices.
Consumer Discretionary: Also underperformed, with key players like Urban Outfitters and Peloton experiencing mixed fortunes.

Factors Influencing the Market

1. Rising Treasury Yields

The yield on the 10-year U.S. Treasury bond rose nearly 9 basis points to 3.863%, exerting downward pressure on equities, particularly tech stocks, which are more sensitive to interest rate movements.
In Canada, the 10-year Government of Canada bond yield climbed back above 3%, reversing a downward trend observed through August.

2. Federal Reserve's Stance and Powell's Upcoming Speech

Investors were on edge ahead of Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Economic Symposium. Markets are eager for signals on the Fed's approach to interest rate cuts, with a 25-basis-point reduction widely expected at the September meeting.
Analysts, including those from Wolfe Research, do not anticipate Powell signaling any cuts larger than 25 basis points, emphasizing the Fed's data-dependent approach.

3. Mixed Economic Data

U.S. Jobs Data: Initial jobless claims for the week came in at 232,000, slightly higher than the previous reading but below the two-month average of 236,000. Continuing claims also saw a modest increase but remained below July's peak. These figures suggest a labor market that is softening but not in free fall.
Housing Market: July home sales in the U.S. rose for the first time in five months, up 1.3% month-over-month. This slight improvement reflects increased consumer choices and better affordability due to lower interest rates.

Sector Performance

1. Technology

The technology sector was the worst performer on Thursday, with the S&P 500's information technology segment declining by 2%. Key stocks included:

Intel (INTC): Dropped 4.8%, leading the sector's losses.
Tesla (TSLA): Fell 4.5%, contributing to the consumer discretionary sector's decline.
NVIDIA (NVDA): Lost ground alongside other semiconductor companies like Advanced Micro Devices (AMD) and Super Micro Computer (SMCI).

2. Energy

Contrary to the broader market trend, the energy sector saw gains, driven by a rebound in oil prices from their near six-month low earlier in the week. This sector’s outperformance helped cushion the overall market's decline.

3. Consumer Discretionary

This sector saw mixed results, with some companies struggling while others gained:

Urban Outfitters (URBN): Plunged 9.6% after disappointing same-store sales growth in the second quarter.
Peloton (PTON): Surged over 33%, marking its best day on record, following better-than-expected quarterly results as the company continues its turnaround plan.

Notable Stock Movements

1. Snowflake (SNOW)

Snowflake's shares tumbled 14.7% as rising costs impacted its operating margins, despite the company beating quarterly expectations and slightly raising its full-year product revenue forecast.

2. Peloton (PTON)

Peloton had a remarkable day, with its stock soaring 33% after posting its first sales increase in nine quarters. The company’s smaller-than-expected loss and ongoing restructuring efforts have been well-received by the market.

3. Urban Outfitters (URBN)

Urban Outfitters saw its stock slide by 9.6% following disappointing sales growth in its second quarter, particularly in locations open for at least a year.

Market Sentiment Ahead of Powell’s Speech

The upcoming speech by Fed Chair Jerome Powell at the Jackson Hole Economic Symposium has captured the market's attention, with investors eager for insights into the Fed's monetary policy direction. While a rate cut in September is widely expected, there is uncertainty about the magnitude and pace of future cuts.

Analyst Expectations

Wolfe Research: Analysts at Wolfe Research anticipate that Powell will maintain a dovish tone, likely confirming a 25-basis-point cut in September. They caution against expecting larger cuts, given the Fed's data-dependent stance.

Investor Sentiment

Market participants are cautious, reflected in the mixed trading patterns seen throughout the day. The anticipation of Powell's speech, coupled with the recent volatility, has left investors on edge, awaiting clearer signals from the Fed.

Other Market Developments

1. Dollar Index

The U.S. dollar index rose 0.5% to 101.55, with notable gains against the Mexican peso and the yen. This reflects ongoing strength in the U.S. economy relative to other regions, despite concerns over potential rate cuts.

2. Nike’s Winning Streak

Nike is on track to set a new record for its longest winning streak. If the stock closes in the green on Thursday, it will mark its 13th consecutive positive session, surpassing the previous record set in 2007.

3. Cybersecurity Stocks

Cybersecurity stocks hit all-time highs, with ETFs like the First Trust Nasdaq Cybersecurity ETF (CIBR) and Amplify Cybersecurity ETF (HACK) experiencing notable gains. Both ETFs have achieved an eight-day win streak, reflecting the sector’s growing importance amid increasing cyber threats.

Conclusion

Thursday, August 22, 2024, was marked by a pullback in the U.S. and Canadian stock markets as investors braced for Fed Chair Powell's upcoming speech at the Jackson Hole Economic Symposium. Rising Treasury yields, particularly in the U.S., put pressure on equities, with technology stocks bearing the brunt of the decline. The labor market remains resilient, though there are signs of softening, and the housing market showed some signs of life with a modest increase in July home sales.

As markets await further guidance from the Federal Reserve, volatility is expected to persist. Investors should remain cautious and pay close attention to upcoming economic data and Fed communications as they navigate these uncertain times.

References

"S&P 500 falls ahead of Powell speech, Treasury yields rise" - Source
"Nasdaq slides as tech stocks drop, Peloton surges on earnings" - Source
"US dollar strengthens as Treasury yields climb" - Source
"Urban Outfitters stock falls on weak sales growth" - Source
"Peloton sees best day ever after earnings beat expectations" - Source
"Powell expected to signal moderate rate cuts at Jackson Hole" - Source
"Nike on track for record winning streak" - Source
"Cybersecurity ETFs hit all-time highs as sector gains momentum" - Source
"July home sales rise for the first time in five months" - Source
"Labor market softens but remains resilient" - Source

$SPY $QQQ $ES_F $NQ_F $NVDA $TSLA $AAPL $META $MSFT $AMD $AMZN $AVGO $SNOW $SMCI $LLY $GOOG $MU $NFLX $INTC $ZM $TXN $PLTR $BAC $AMAT $CRM $UNH $HD $SCHW $COST $FFIE $CRWD $V $XOM $WMT $LRCX $JPM $TGT $QCOM $MSTR $PANW $COIN $JNJ $MRK $INTU $SBUX $TJX $WDAY $ADBE $PEP $WFC $KO