Hope you are all doing well. The S&P 500, the NASDAQ, and the Dow each climbed more than 1% for the week, failing to match the previous week’s big gains but nevertheless extending their comeback from a rough start to August. After two strong weeks, the major U.S. stock indexes recovered almost all of the ground lost during a stretch of elevated volatility in late July and early August. At Friday’s close, the S&P 500 was within 0.58% of the record high that it reached in mid-July, while the Dow was just 0.06% shy of the historic peak that it reached last month. The NASDAQ was 4.13% below its record. This week the news was dominated by the upcoming election. I have broken down this week’s update using awkward quotes from the three candidates who made headlines this week.
“So I pulled over and I picked up the bear and put him in the back of my van.” – Robert Kennedy Jr.
Like RFK Jr. the bond market is running out of time to deal with a bear. The quasi bear market in bonds may be coming to an end. Bond prices move opposite interest rates so as rates climbed prices fell. That trend is on the cusp of reversing as the growing likelihood of interest-rate cuts produced another volatile week for U.S. government bonds. The yield of the 10-year U.S. Treasury on Wednesday fell to as low as 3.76%, slightly above a year-to-date low set a couple weeks earlier. The yield had been as high as 4.70% as recently as late April, when the possibility of rate cuts appeared more distant. I still don’t view long term bonds as a great investment but they should start to perform better than they have the past 3 years.
“I think apologizing’s a great thing, but you have to be wrong. I will absolutely apologize, sometime in the hopefully distant future, if I’m ever wrong.” – Donald Trump
Even the most ardent Trump supporter will admit he is occasionally wrong but one thing he was right about was choosing Jerome Powell to Chair the Federal Reserve. The U.S. Federal Reserve has navigated this rate hiking cycle almost flawlessly. Stocks which were choppy earlier in the week ended on a positive note Friday following a speech by U.S. Federal Reserve Chair Jerome Powell. Chair Powell declared that “the time has come for policy to adjust,” reinforcing market expectations for an initial interest-rate cut at the Fed’s next meeting ending September 18. Speaking in Jackson Hole, Wyoming, Powell noted that the labor market has recently cooled while inflation has continued to ease downward closer to the Fed’s 2% target. The Fed has stayed on message throughout this rate hiking cycle, the economy has avoided recession and now with the labor market starting to soften they are reversing course at the exact right time.
“I can imagine what can be, and be unburdened by what has been.” – Kamala Harris
This catch phrase took on a whole new meaning this week. The administration can imagine what it’s like to add a record amount of jobs, unburdened by the fact that they did not actually add said jobs. The U.S. government’s annual process to revise initial estimates of jobs growth resulted in an unusually large downward adjustment, which indicated that the labor market wasn’t as strong as it had appeared. Employers added 818,000 fewer jobs than previously thought in the 12-month period that ended in March 2024, based on records collected from state unemployment offices relative to earlier estimates drawn from employer surveys. This means the job market is not as strong as previously thought and is probably why we are seeing the shift in Fed policy. I have been saying I don’t think the Fed would reduce rates in September because the labor market was still strong. However, in light of this new information and Powell’s speech there is a much higher probability of them cutting rates in September.
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