Hope you are all doing well. The major U.S. stock indexes fell more than 2% as the S&P 500 and the NASDAQ recorded their third consecutive weekly declines. The downward trend follows a fantastic rally in July. The Tuohy family from the movie “The Blindside” was in the news this week. I have broken down this week’s update using quotes from Sandra Bullock’s character in the movie.
Look, here’s the deal, I don’t need y’all to approve my choices alright, but I do ask that you respect them.
For months the bond market has not respected a mountain of Fed commentary suggesting they intend to keep rates elevated. That is starting to change. The latest U.S. Federal Reserve meeting minutes and fresh economic data finally bolstered market expectations that interest rates are likely to remain high for longer. The yield of the 10-year U.S. Treasury bond on Thursday briefly eclipsed 4.32%, the highest since November 2007. Yields fell somewhat on Friday, and the 10-year bond ended the week at around 4.25%. Consensus expectations around Fed policy are starting to match the Fed’s commentary. The economy is still growing and the labor market is still strong. This is forcing the bond market to accept that the Fed will keep its policy rates elevated hence the move in longer-term yields.
Who died and made him Bear Bryant?
Ok maybe I am not Bear Bryant but I have been getting you prepared for this current drop. We are now experiencing the pause in the summer market rally that I have been predicting. The narrow market leadership driven by mega-cap tech was overdue for some profit taking. The August pullback is more a function of people cashing in some gains and not a breakdown in the fundamentals or something to be concerned about. This week despite all the negativity we also saw the foundation for the next leg of the rally. Second-quarter earnings season is drawing to a close with some encouraging trends. Overall earnings appear to be bottoming, helped by solid revenue growth and signs that profit margins will soon turn higher as cost pressures subside. The latest monthly U.S. retail sales report exceeded most economists’ expectations. The government reported that sales rose 0.7% in July relative to the previous month, topping consensus estimates of around 0.4%. Sales were up in 9 of 13 retail categories. Even Target which has struggled so far this year reported that sales and traffic have improved in July.
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