Another busy week on deck

July 30th, 2024

RECAPPING LAST WEEK

U.S. equity indices once again posted mixed performance in volatile trading as investors assessed the latest economic data and corporate earnings results. The Nasdaq Composite index fell more than 2%, while the S&P500 edged lower by nearly 1%. The Russell 2000, on the other hand, notched its third straight week of gains, jumping 3.5%. S&P500 sector performance was spilt, with technology, communications, and consumer discretionary underperforming significantly. Disappointing earnings reports from Alphabet and Tesla sent the Nasdaq-100 index tumbling by more than 3.5% on Wednesday.

Crude oil prices fell 2.3% as traders feared falling demand from China. U.S. Treasury yields retreated on Friday after June’s PCE index readings were in line with expectations, keeping on track a widely anticipated September interest rate cut. The headline inflation number was up 0.1% MoM and 2.5% YoY, while core PCE increased 0.2% MoM and 2.6% YoY. Personal income was below forecasts, with spending matching estimates.

Data earlier in the week revealed that economic activity continued to surprise to the upside with inflation subsiding, which is music to the Federal Reserve’s ears. Second-quarter GDP grew at a 2.8% annualized rate, well above expectations and led by a 2.3% increase in consumer spending. The economic momentum extended into July, as the S&P Global flash composite PMI rose to 55 and the services sector reached a 28-month high of 56.0. Goods and services prices continued to increase MoM, but at a slower rate.

Durable goods orders for June were up 0.5%, excluding the volatile transportation sector. However, U.S. housing remained a sore spot, with new and existing home sales sliding in June. The median existing home price jumped 4.1% YoY to an all-time high of $426,900. On the international side, China surprised markets twice last week with interest rate adjustments. First, the country cut benchmark lending rates for the first time in nearly a year as leadership faces potential deflation, surging debt, and trade tensions.

Later, China’s central bank conducted an unscheduled lending operation at sharply lower rates to provide more monetary stimulus. Chinese stocks fell— investors feared the urgent action indicated the economy could be in worse shape than previously thought. Elsewhere, the Bank of Canada lowered interest rates for a second straight meeting, with officials signaling that downside economic risks may be building. Finally, flash PMI readings in Europe and the UK reflected diverging economic trends. Germany’s manufacturing activity plunged to new lows, while Britian’s saw the fastest growth in two years.

THE WEEK AHEAD

Another busy week is on deck with central bank decisions, U.S. labor and wages data, and key corporate earnings announcements. On Wednesday, the Federal Reserve is expected to hold interest steady ahead of an expected cut at the September meeting. The Fed may signal the cut at this meeting, or they could choose to wait until the Jackson Hole Symposium in late August.

The monthly U.S. labor market numbers are on tap, starting with the JOLTS job openings on Tuesday, ADP private payrolls on Wednesday, and finally the government non-farm payrolls on Friday. Wage growth will also be top-of-mind with inflation trending lower recently. Preliminary estimates for the secondquarter employment cost index and unit labor costs arrive this week.

On the earnings front, most of the technology giants that haven’t already reported are scheduled to this week, including Apple, Amazon, Microsoft, Advanced Micro Devices, and Meta Platforms. Consumer confidence, pending homes sales, ISM manufacturing PMI, and factory orders round out the U.S. economic agenda. Overseas, the Bank of Japan will announce its interest rate decision Tuesday evening, and the Bank of England will follow on Thursday morning.

The Japanese yen has strengthened recently versus the U.S. dollar, leading some to speculate that the BOJ will hike rates by 10bps and announce a plan to reduce ETF purchases. The latest economic data out of the UK suggest that odds of a rate cut at this week’s meeting are 50/50. Europe will be focused on the latest inflation numbers that come out midweek. Last of all, China’s manufacturing and services PMI arrive Tuesday evening, along with Australia’s CPI and retail sales reports.

(source: Schwab Advisor)

Definitions

Annualized Return: The rate at which an investment grows each year over the period to arrive at the final valuation.
Bear Market: A decline of at least 20% from the market’s high point to its low.
Beta: A measure of how an individual asset moves when the overall stock market increases or decreases.
Correlation: A measure of the extent to which two variables are related.
Dividend Yield: The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share. It is also a company’s total annual dividend
payments divided by its market capitalization, assuming the number of sharesis constant.
Developed Markets: A country that is most developed in terms of its economy and capital markets. The country must be high income, but this also includes openness
to foreign ownership, ease of capital movement, and efficiency of market institutions.
Emerging Markets: A country that has some characteristics of a developed market but does not fully meet its standards. This includes markets that may become
developed marketsin the future or were in the past.
GrowthFactor Stocks: Growth stocks are companies expected to grow sales and earnings at a fasterrate than the market average.
LargeCap Stocks: Shares of publicly traded corporationswith a market capitalization of $10 billion or more.
LTM: An acronymfor”Last Twelve Months”or the past one year.
NTM:An acronymfor”Next Twelve Months” or the next one year.
Price Return: The rate of return on an investment portfolio, where the return measure takes into account only the capital appreciation of the portfolio, not including
income generated in the form of interest or dividends.
Total Return: Return on a portfolio of investmentsincluding capital appreciation and income received on the portfolio.
Small Cap Stocks: Small-cap stocks are shares of companieswith a market capitalization of less than $2 billion.
Standard Deviation: In statistics, the standard deviation is a measure of the amount of variation or dispersion of a set of values. A low standard deviation indicates the
valuestend to be close to the historical average of the data set, while a high standarddeviationindicatesthe current value is outside of the historical average range.
Value Factor Stocks: Stocksthat are inexpensive relative to the broad market based on measures of fundamental value (e.g., price to earnings or price to book).

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