Weekly Market Performance — August 9, 2024

With additional content provided by Brian Booe, Associate Analyst, Research.

LPL Research provides its Weekly Market Performance for the week of August 5, 2024. In a rollercoaster ride of a week, U.S. stocks were strapped in firmly and held on to limit weekly results to modest declines. Global markets faced a steep sell-off as recession anxiety carried over from last Friday combined with yen carry-trade unwinding, sending stocks into a slide. However, equity markets did not go down without a fight, delivering strong rallies on Tuesday and Thursday. In bond markets, Treasury yields ticked higher as investors waded back into riskier assets and Treasury auctions were far weaker-than-expected. Commodities also faced a wild week, as crude oil bounced back from a seven-month low on Monday to secure its first weekly gain in the last five weeks.

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 08/09/24 @ 2:30 p.m. ET
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

Markets: In a dramatic week of choppy trading, major U.S. indexes closed mostly lower, notching the Nasdaq’s fourth straight week of declines. Despite the week starting with a pullback, major indexes persevered, delivering broad rallies capped with gains on Friday after a surge on Thursday. Fighting through elevated volatility, the S&P 500 ended the week little changed. The tech-heavy Nasdaq also trimmed losses into the close, ending the week down 0.35%, while the Dow Jones Industrial Average closed 0.8% in the red. Large-cap growth and value indexes moved nearly in lockstep throughout the last five sessions, however growth names edged higher to outperform value on the week.

Monday started with a bang as global markets experienced a sharp sell-off due to U.S economic hard-landing concerns, extending last Friday's dip in the wake of the latest payroll and employment report. Weakness was further exacerbated by the continued unwinding of yen carry-trades (investors borrowing a currency with low interest rates and investing in a currency with relatively higher rates) following last week's Bank of Japan (BOJ) rate hike and hawkish tone. However, in the following sessions, economic concerns eased as markets rallied around strong U.S. services data and a drop in jobless claims. On a week with a light economic calendar, Thursday’s claims data took on added importance, helped soothe economic jitters, and sparked a rally that nearly erased Monday's losses. To end a dramatic week of events, gains were relatively muted Friday.

International markets also sold off sharply Monday as U.S. recession fears spilled overseas. Japan shed 12% on Monday, bearing the brunt of global markets’ declines due to added pressure from yen carry-trade unwinding. Japanese markets bounced back in a big way Tuesday after real wage growth turned positive for the first time in two years and continued to advance Wednesday after BOJ officials stated they would not raise rates if financial markets were unstable. After the smoke cleared, despite solid gains on Friday, Japan ended the week lower. Broader Asian markets ended mostly lower as well, with Hong Kong sealing a weekly gain on the back of a Friday afternoon rally. Tech-leaning Taiwan and South Korea ended lower, as did mainland China and India.

European markets remained relatively quiet outside of global market catalysts spilling over. With a light economic calendar and earnings season continuing in full swing, bright spots included reports that second quarter earnings were on track for growth for the first time since 2022. The STOXX 600 index for Europe ended 0.3% higher, with the U.K. closing flat and France and Germany delivering slight gains.

Fixed Income: The Bloomberg U.S. Aggregate Bond Index traded lower on the week as bond markets also experienced choppy sessions in reaction to global events and the latest batch of Treasury auctions. Treasury yields ended the week off their best intra-week levels, as the 10-year yield closed three basis points higher, and the 2-year yield added seven basis points. After trading around 4.13% to start August, the 10-year traded as low as 3.66% on Monday during the carry trade unwind as the risk-off trade pushed yields lower. Additionally, during Monday’s early trading session, the longest yield curve inversion in U.S. history came to a temporary end as the 2-year yield briefly fell below the 10-year. However, while the spread has narrowed, it remains inverted. The volatile week turned investors off to the Treasury Department’s 10-year and 30-year auctions as auction statistics were among the worst in many months.

The good news? The recent risk-off episode saw the bond-equity correlation flip such that bonds acted like bonds again and provided a ballast to equity market weakness. Will that negative correlation persist? To be sure, stocks and bonds aren’t always negatively correlated, nor have they been historically. However, markets do have a Pavlovian response to price-in Fed rate cuts when things unexpectedly turn negative. In that environment, bonds should provide a ballast to portfolios. With the economy slowing and volatility likely to stay relatively elevated, we think bonds can provide both income as well as potential portfolio protection on an ongoing basis.

Commodities and Currencies: Commodities and currencies joined equity and fixed income markets in delivering action of their own this week. The Bloomberg Commodities Index traded nearly 0.9% higher this week, as oil continued to experience wild price swings. West Texas Intermediate (WTI) crude hit a seven-month low on Monday amid the global stock sell-off but rebounded on U.S. jobless claims data and the sixth straight weekly drawdown in U.S. crude inventories. WTI crude reached its first weekly gain in five, adding almost 4.3%, also with the support of underlying Middle East tensions. Nonetheless, the Japanese yen dominated headlines as the currency weakened against the dollar amid continued carry-trade unwinding, reaching its first weekly drop in six. The U.S. dollar index ended the week flat to cap off a turbulent few days. Losses were limited due to stock weakness boosting some liquidity demand for the greenback, and support coming from the biggest drop in initial jobless claims in nearly a year. Gold held steady, buoyed by a late-week rally on Friday’s dip in Treasury yields. Silver and platinum both closed the week with declines, and copper also slipped on lower demand expectations. Soft commodities ended the week 1.6% higher, based on the Bloomberg Soft Commodity Index.

Economic Weekly Roundup

Jobless Claims was a Mixed Bag. Initial claims fell, but those continuing to claim unemployment benefits rose. Initial unemployment claims dipped to 233,000 from an upwardly revised 250,000 level the previous week. Continuing claims inched higher again to 1.88 million in the final week of July and over 100,000 higher since the start of this year. But the four-week moving average for initial claims is steadily rising as the job market slows.

Investors should be careful not to read too much into one report, as they did recently with the last payroll report. A holistic interpretation of the labor market is hiring will likely slow throughout the rest of the year, putting some downside risk to income growth. If the data deteriorates quickly from here, the Fed could take more decisive action in September and cut by a half of a percent, which would provide some salve for markets.

Consumer Credit Fell in June. Demand for consumer credit declined the most since March 2021. Revolving credit – which includes credit cards – fell 1.5% from last month, or $1.7 billion as consumers felt the weight of the slowdown. The decline in revolving credit was the most since early 2021 and indicates a lower appetite for spending. Auto loans, a type of non-revolving credit, rose $10.6 billion, the strongest gain since last year. More incentives and lower auto prices drove consumers to dealer lots in recent months.

Consumers are feeling the pressure from elevated price levels and slowing income growth. Softer demand for credit will likely impact lower-income consumers the most, but overall, the data suggest a slowdown in consumer spending for the rest of this year. The deterioration of financial conditions and softer trajectory for consumer spending increase the odds of the Fed acting more aggressively at the September meeting.

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: New York Fed 1-year Inflation Expectations (July), Monthly Budget Statement (July)
• Tuesday: NFIB Small Business Optimism (July), PPI Final Demand (July), PPI Ex Food and Energy (July), PPI Ex Food, Energy, and Trade (July)
• Wednesday: MBA Mortgage Applications (Aug 9), CPI (July), CPI Ex Food and Energy (July), CPI Index NSA (July), CPI Core Index NSA (July), Real Average Hourly Earnings (July), Real Average Weekly Earnings (July)
• Thursday: Empire Manufacturing (Aug), Retail Sales Advance (July), Retail Sales Ex Auto (July), Retail Sales Ex Auto and Gas (July), Retail Sales Control Group (July), Philadelphia Fed Business Outlook (Aug), Initial Jobless Claims (Aug 10), Continuing Claims (Aug 3), Import Price Index (July), Import Price Index ex Petroleum (July), Export Price Index (July), Industrial Production (July), Capacity Utilization (July), Manufacturing (SIC) Production (July), Business Inventories (June), NAHB Housing Market Index (Aug), Total Net Treasury International Capital Flows (June), Net Long-term Treasury International Capital Flows (June)
• Friday: Housing Starts (July), Building Permits (July), New York Fed Services Business Activity (Aug), University of Michigan Report (Aug Preliminary)