As a highly volatile week draws to a close, the price action so far today reflects a relative sense of calm and suggests that stocks are going to finish the week close to unchanged. Indeed, last Friday the S&P 500 closed at 5,346, and right now it’s trading at 5,324. This is a welcome development compared to how we started the week, when a sense of fear and panic gripped markets early on Monday morning as investors worried about a potential Fed policy mistake leading to an imminent recession here in the US, while at the very same time sophisticated trading strategies involving the Japanese yen were being feverishly unwound.
Thankfully, the latest incoming economic data allowed everyone to take a deep breath and realize that the US economy hasn’t suddenly fallen off a cliff. After a disappointing ISM Manufacturing survey last week helped to spark some of the latest concerns, on Monday we found out that the ISM Services survey (which covers a much larger percentage of the economy) rebounded back into expansion territory last month, with most of the underlying subcomponents confirming the headline improvement. Separately that day, we received the latest update of the quarterly Senior Loan Officer’s Opinion Survey, which showed that banks continue to ease lending standards for loans of all types after aggressively tightening them a year ago in the wake of the failure of Silicon Valley Bank. On Wednesday, we learned that homeowners with existing high-rate mortgages rushed to refinance them as mortgage rates dropped to their lowest level in over a year. And most importantly, yesterday it was reported that new filings for unemployment benefits fell sharply from the prior week as weather-related impacts from Hurricane Beryl began to fade, alleviating some of Friday’s concerns about the health of the labor market.
All of these are more consistent with an economy that is cooling towards a soft landing rather than screeching to a halt. However, there will inevitably be an occasional bump in the path along the way, and with attention increasingly shifting from inflation to the strength of the economy there’s certainly the potential for additional volatility as investors digest each data point. Our core beliefs of staying diversified and owning quality should continue to serve our clients well as this plays out.
Source: Bloomberg, US Department of Labor, as of 8/8/24
Source: Yahoo, Freddie Mac, as of 8/8/24
Carl Noble, CFA
Senior Vice President of Investments
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