“All past declines look like an opportunity, all future declines look like a risk.”
-Morgan Housel
Here’s what you need to know this week:
- Markets continue to rebound and break into positive territory for the month of August
- The Federal Reserve’s “soft landing” looks more and more attainable
In the Green
Last week, stocks posted their best week of 2024 and are now within striking distance of all-time highs[1]. For the week, the S&P 500 gained 3.9%, the NASDAQ gained 5.2% and the Dow Jones gained 2.9%. As of writing, the S&P is just 1.2% off its all-time high, the NASDAQ is 4.5% away from a new high, and the Dow Jones is less than 1% below its high-water mark[2].
Soft Landing In Sight
There are a few reasons for this rapid rebound. The first is the Consumer Price Index (CPI) report we discussed last week. July’s CPI report showed annualized inflation at 2.9%, the lowest number in more than three years. This report gave investors more confidence that the Federal Reserve will cut interest rates at their meeting next month.
Second is an improving labor market. Indeed’s Wage Tracker shows that US wage growth has begun to increase for the first time since late 2021.
Interestingly, this chart very closely resembles the CPI chart over the same time frame:
This correlation makes sense if you think about it: when prices go up, workers will demand pay increases to compensate for their increased living expenses. However, one sign of a strong economy is when wage gains outpace inflation, so these two charts diverging indicates that we are getting closer to the Federal Reserve’s “soft landing”.
The last positive signal is corporate earnings. We are nearing the end of the second quarter’s “earnings season” where companies report their quarterly profits, and this earnings season has shown corporate earnings to be impressively resilient. As of writing, 93% of S&P 500 companies have reported earnings, and 79% of those companies have posted earnings that surpassed Wall Street analysts’ expectations[3]. This shows that the majority of corporations have stayed healthy despite this interest rate hiking cycle and may be poised to perform even better once interest rates begin to fall.
The Federal Reserve will begin its annual three-day symposium in Jackson Hole, Wyoming this Friday, August 23rd. This event attracts central bankers from around the world and features keynote speeches from multiple senior Fed officials. Fed Chairman Jerome Powell will speak on Friday morning, and investors will be watching closely for any clues as to the Fed’s next move.
What Else
- The price of gold reached a new all-time high of more than $2,500 per ounce
- The Democratic National Convention takes place this week in Chicago
- The World Health Organization declared monkeypox a global health emergency
- US Secretary of State Antony Blinken announced that Israel has agreed to a ceasefire, and is now waiting on Hamas to accept the proposal
What We’re Reading
The Oscar Mayer Wienermobile is probably the most famous corporate vehicle, but more companies are starting to get in on the trend. The newest vehicle is L.L. Bean’s “Bootmobile” which, as you may have guessed, is shaped like a giant duck boot. Click below to see pictures of this ridiculous vehicle and to read about one Bootmobile driver’s trip from Maine to Massachusetts:
What’s Happening Downtown
The West Village District is holding Fourth Fridays this Friday, August 23rd. Fourth Fridays is a monthly event that features discounts and specials from local restaurants and retailers, as well as live music, food trucks and more. Click below to learn more:
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Written by: Kane Ogle, CFP®
Steve Beck, Amber Eduvigen, CFP®, Kane Ogle, CFP®, Cale Olbert, CFP®, Brett Valentine, Brandon Ingerson, Jenni Hess, Anne Boone
Sources: [1] Bloomberg; [2] CNBC; [3] Yahoo! Finance