A difficult week for global financial markets ended with major domestic stock indices near two-month lows after disappointing U.S. jobs data stoked economic slowdown fears and sent stock market volatility to nearly two-year highs. The S&P 500 Index was down 2.1% for the week and the Nasdaq Composite closed the week down 3.3%. The Dow Jones Industrial Average finished the week 2.1% lower. Treasury yields were down last week with the 10-year U.S. Treasury note ending the week down thirty-nine basis points to 3.80% and the 2-year U.S. Treasury note down fifty basis points ending the week at 3.88%. The 2-year/10-year U.S. Treasury yield curve steepened but remained inverted, finishing the week at only eight basis points inverted. Gold finished the week 2.1% higher, ending the week at $2,438/ounce. West Texas Intermediate (WTI) crude oil was down by 3.9% for the week, ending the week at $74.12/barrel.
Last Wednesday, the Federal Open Market Committee (FOMC) voted to leave interest rates unchanged leaving the Fed Funds target range at 5.25% to 5.50%. In a statement by the Federal Reserve (Fed), it noted that, "Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated." The statement continued, "…the economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate." Persistent core inflation data and a still tight, but cooling, labor market resulted in the Fed’s decision to keep rates elevated, despite witnessing overall inflation which continues to moderate from recent highs. Fed officials will do what is necessary to curtail inflation, while attempting to avoid derailing the economy.
Last week’s market moving news came after the FOMC meeting as several employment reports raised concerns from investors. Initial jobless claims for the week ending July 27 increased by 14,000 to 249,000. Continuing jobless claims for the week ending July 20 increased by 33,000 to 1.877 million, the highest level since November 27, 2021. Also last week, the July payrolls report showed that the U.S. economy added 114,000 jobs, less than the 175,000 expected, with some modest downward revisions to prior months. The unemployment rate jumped to 4.3% vs. expectations of 4.1%, and wage growth increased 3.6%, the smallest gain in more than three years. The key takeaway from these reports is that the labor market is cooling, which could lead to slower consumer spending, which is the largest contribution to domestic economic growth. The labor market is adjusting to slower economic growth, and this data suggest that it might be doing so faster than investors and policymakers are comfortable with, increasing the odds of interest rate cuts from the Fed through year-end. After the weaker than expected jobs data, investors are now expecting four-to-five 25bp interest rate cuts from the U.S. Fed in 2024. That is up from an expected two-to-three 25 bp interest rate cuts following last Wednesday’s FOMC meeting.
Following last week’s weaker-than-expected jobs report that rattled markets, investors will get fresh data on the services sector, consumer credit levels, and a slew of earnings reports this week. Pharmaceutical companies will be in the spotlight, with earnings from Eli Lilly, Novo Nordisk, Amgen, and Gilead Sciences. Other domestic companies set to report earnings include Walt Disney, Palantir Technologies, Caterpillar, Uber Technologies, and Airbnb. On the domestic economic front, it’s a relatively light week of data. On Monday investors will digest ISM Services data for July. Tuesday brings the U.S. trade deficit, on Wednesday investors will digest consumer credit, and finally on Thursday, wholesale inventories are reported.
As always, we will be watching and reporting to you next week. Thank you.
