Weekly Market Update: August 19, 2024
The nation’s economy has been flashing mixed signals lately. According to the advanced estimate, gross domestic product (GDP) rose at an annualized rate of 2.8% in the second quarter, dramatically higher than anticipated and far better than the lackluster 1.4% figure logged in the first quarter. In contrast, the labor market has displayed signs of softening, with the July employment report showing just 114,000 jobs added to the economy and the unemployment rate rising to 4.3%. Recent manufacturing and consumer confidence readings have also been somewhat uneven.
Meanwhile, the Federal Reserve will probably take action, as inflation continues to ease. Specifically, the July Consumer Price Index (CPI) and core CPI, which excludes the more volatile food and energy components, both rose 0.2%, matching the consensus forecast. On a 12-month basis, the CPI and core CPI readings showed a moderation in price growth last month, with the headline figures rising 2.9% and 3.2%, respectively. This report also came on the heels of a more benign July reading on producer price growth. Ongoing progress on the inflation front and signs of a cooling economy should prompt the Federal Reserve, which will hold its Jackson Hole Economic Policy Symposium this month, to reduce interest rates in September.
Corporate profits have proven supportive. Second-quarter earnings season is in its final stages. With more than 90% of the corporations in the S&P 500 Index having reported, the large majority delivered impressive results, with earnings advancing above 10%, on average, for the quarter. However, investors have been paying close attention to guidance, reacting wherever valuations have seemed extreme.
Volatility has returned to Wall Street. Equities softened in late July and dropped dramatically during the first week of August. The pullback was sparked by concerns about excessive corporate spending on artificial intelligence and worries about the economy. In addition, the selling (and level of volatility) accelerated when large hedge funds were forced to liquidate U.S. equity positions in response to currency movements taking place in Japan. Whatever the reason, the market logged outsized gains in the first half of 2024 and some profit taking was inevitable.
Conclusion: In the current environment, we recommend subscribers maintain a portfolio of high-quality equities, along with an ample cash position.
Source: ValueLine.com
