Forward March

By JSF Financial on Sep 12 in Economics, Investing, Market Update, Politics

Quick Take: Stocks overcame early volatility in the month to notch a fourth consecutive month of gains.^[1] Bonds advanced after the Federal Reserve Chairman Powell endorsed imminent rate cuts. ^[2]

US stocks made modest gains in August, after a volatile month saw a series of positive economic data reports override concerns over the health of the job market.^[3]

After a jump in retail sales and data showing inflation continuing to subside, the S&P 500 ended August with a 2.3% monthly advance, finishing the month just short of its record close from July. ^[4],^[5]

The S&P 500 has now notched four consecutive monthly gains, its longest run since March, as the economy shows resilience as we approach the beginning of a rate cut cycle.^[6]

Source: https://www.bloomberg.com/news/articles/2024-08-29/stock-market-today-dow-s-p-live-updates

Treasuries have also managed their longest monthly winning streak in three years amidst growing confidence in the case for lower rates.^[7]

Source: https://finance.yahoo.com/news/treasuries-track-best-rally-since-220000877.html

Volatility Spike

Early in the month, stocks were sent into a tailspin by disappointing July employment numbers. Signs of a slowdown triggered a selloff where the technology-heavy NASDAQ fell into a technical correction.^[8] During the rout, the US market saw daily swings of half a trillion dollars in the value of the Magnificent 7 tech giants.^[9]

A spike in volatility was notable – the S&P 500 managed to clock in both its best and worst days since 2022 in the same week.^[10]

The extent of this volatility was last seen during the depths of the pandemic.^[11] However markets calmed by the end of August. ^[12] The VIX – Wall Street’s fear gauge – dropped to 15, having been as high as 65 during the early month sell-off.^[13]

Source: https://finance.yahoo.com/news/once-lifetime-wall-street-rally-203750232.html

While rebounding from the worst spike in volatility since the pandemic, markets have shown a strength of confidence and conviction across asset classes.^[14] ETFs tracking government debt, corporate credit and equities have all risen in unison for four months in a row, the longest stretch of correlated gains since at least 2007.^[15]

These cross-asset gains reflect the view that the Federal Reserve (Fed) will be cutting rates into a healthy economy.^[16] Of note, the S&P 500 has climbed 25% in the past 12 months and has never performed so well in the run-up to a rate cut cycle.^[17]

Fed Pivots to Defend Employment

During the Fed’s annual economic conference in Jackson Hole, Fed chair Jay Powell gave the green light for a 25 basis-point rate cut and left the door open for larger cuts if necessary.^[18] A key takeaway for the market was an emphatic pivot from battling against inflation to readying the defenses against job losses – potentially opening a new chapter for monetary policy ahead of the election.^[19]

Crucially, the August employment data may provide insight into whether a larger half-point cut is still on the table.^[20] Recession fears had been stoked by revisions to 12 months of previous labor market data, which showed the US economy added far fewer jobs than previously reported.^[21] While the number of Americans filing new applications for jobless benefits slipped, re-employment opportunities for laid-off workers are becoming more scarce. This suggests the unemployment rate probably remained elevated in August.^[22]

The data suggest cracks in the labor market, but the bigger picture remains consistent — job growth is slowing but not collapsing.^[23]

Source: https://www.reuters.com/markets/us/us-weekly-jobless-claims-fall-slightly-2024-08-29/

Looking ahead, the labor market is a key focus for sentiment. ^[24]

Powell’s comments that the Fed would do everything it can to support a strong labor market raised the prospect of a bigger rate cut in September.^[25] He referenced “ample room” for lower borrowing costs to cushion the economy.^[26]

Consumer Spending Drives Up Q2 GDP

Meanwhile, upbeat economic data continues to support markets. Revisions to second quarter GDP showed a 3.0% annualized growth rate, up marginally from the previous 2.8% estimate and up significantly from the 1.4% pace in Q1.^[27] The GDP breakdown showed consumer spending, which accounts for more than two-thirds of the economy, was revised up because of growth in wages.^[28] Economists believe that although growth is slowing in the near term, we don’t seem to be headed for a recession.^[29]

Source: https://www.reuters.com/markets/us/us-weekly-jobless-claims-fall-slightly-2024-08-29/

Strong retail sales data for July also gave markets a boost, increasing confidence that the US economy may avoid a recession.^[30] The 1% reported jump in sales came in significantly ahead of forecasts and was the biggest increase in a year and a half.^[31]

What’s Next

Although past results should not be used to predict the future, since 1950, the S&P 500 index has produced an average loss of 0.7% in September and finished higher only 43% of the time, making it the worst month for stocks on an average return basis.^[32] Markets may have this in mind along with looming election uncertainty, and we wouldn’t be surprised if volatility picks back up. And while the Fed has signaled it will cut rates at its next meeting in September, there is some uncertainty over how fast rates will come down.^[33]

During market turbulence, the most sustainable approach is to stay committed to a long-term strategy. Diversification, risk management, and a long-term perspective are the cornerstones of a robust plan. While the markets have shown resilience, unexpected challenges can arise, and having a well-thought-out approach is key to weathering any storms ahead.

As you consider your financial goals for the remainder of the year and beyond, please remember that we are here to support you every step of the way. Please reach out if you have any questions or if there have been any changes to your financial situation or personal life. Your confidence in us is greatly appreciated, and we look forward to helping you navigate the months ahead with discipline and confidence.

From Your Friends at JSF

The information expressed herein are those of JSF Financial, LLC, it does not necessarily reflect the views of NewEdge Securities, Inc. Neither JSF Financial LLC nor NewEdge Securities, Inc. gives tax or legal advice. All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed constitutes a solicitation or recommendation for the purchase, sale or holding of any security. Investing involves risk, including possible loss of principal. Indexes are unmanaged and cannot be invested in directly.

Historical data shown represents past performance and does not guarantee comparable future results. The information and statistical data contained herein were obtained from sources believed to be reliable but in no way are guaranteed by JSF Financial, LLC or NewEdge Securities, Inc. as to accuracy or completeness. The information provided is not intended to be a complete analysis of every material fact respecting any strategy. The examples presented do not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy. Diversification does not ensure a profit or guarantee against loss. Carefully consider the investment objectives, risks, charges and expenses of the trades referenced in this material before investing.

Asset Allocation and Diversification do not guarantee a profit or protect against a loss.

The Bloomberg Barclays U.S. Aggregate Bond Index measures the investment-grade U.S. dollar-denominated, fixed-rate taxable bond market and includes Treasury securities, government-related and corporate securities, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

The S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market.

TLT-iShares 20 Plus Year Treasury Bond ETF seeks to track the investment results of an index composed of US Treasury bonds with remaining maturities greater than twenty years.

The CBOE Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX). Because it is derived from the prices of SPX index options with near-term expiration dates, it generates a 30-day forward projection of volatility. Volatility, or how fast prices change, is often seen as a way to gauge market sentiment, and in particular the degree of fear among market participants.

The Nasdaq Composite is a market-capitalization-weighted index consisting of all Nasdaq Stock Exchange listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds or debenture securities.

Treasury Bond- is a U.S. government debt security with a fixed interest rate and maturity between two and 10 years.

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. GDP is the most commonly used measure of economic activity.

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[i] Stock Market Today: Dow, S&P Live Updates for August 30 – Bloomberg

[ii] https://www.reuters.com/markets/us/with-fed-pivot-hand-powell-may-opt-broad-brush-approach-jackson-hole-2024-08-23/

[iii] https://www.wsj.com/finance/stocks/global-stocks-markets-dow-news-08-30-2024-67081049?mod=hp_lead_pos4

[iv] https://www.wsj.com/finance/stocks/global-stocks-markets-dow-news-08-30-2024-67081049?mod=hp_lead_pos4

[v] https://www.wsj.com/finance/stocks/global-stocks-markets-dow-news-08-30-2024-67081049?mod=hp_lead_pos4

[vi] Stock Market Today: Dow, S&P Live Updates for August 30 – Bloomberg

[vii] https://finance.yahoo.com/news/treasuries-track-best-rally-since-220000877.html

[viii] Stock Market News, Aug. 2, 2024: Nasdaq Falls Into Correction; S&P 500 Slides After Weak Jobs Report | The Wall Street Journal

[ix] https://www.wsj.com/finance/stocks/market-volatility-is-back-will-it-last-61ccf1ce?mod=series_stockmarket

[x] https://www.wsj.com/finance/stocks/market-volatility-is-back-will-it-last-61ccf1ce?mod=series_stockmarket

[xi] https://www.wsj.com/finance/stocks/market-volatility-is-back-will-it-last-61ccf1ce?mod=series_stockmarket

[xii]Stock Market Today: Dow, S&P Live Updates for August 30 – Bloomberg