Market Update – August 26th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, August 26th

Financial Markets

Stocks rose again last week following a dovish speech by Fed Chair Jerome Powell on Friday, signaling the Fed is ready to start cutting rates. As of Friday, August 23rd, the S&P 500 climbed 1.45%, the Nasdaq Composite rose by 1.4%, the Dow Jones Industrial Average rallied 1.27%, and the Barclays Aggregate Bond Index gained 0.65% in the week.

Market News

Jackson Hole:

Friday’s speech by Fed Chair Jerome Powell at Jackson Hole was concise but delivered a clear message that the markets welcomed. Powell explcility stated, “the time has come for policy to adjust”, which is arguably the clearest indication yet, that the Federal Reserve is preparing to begin cutting rates soon.

Markets quickly reflected this clarity, with expectations for rate cuts becoming more aggressive than they were a month ago. Currently, markets are anticipating a full 100 basis points of cuts by the end of the year, compared to the 50 to 75 basis points expected just a month ago.

The upcoming Fed meetings, especially the one in September when investors will receive the Fed’s updated Summary of Economic Projections, will be crucial for the US economy and market sentiment as we head into the final months of 2024.

Source: CME Group FedWatch, as of 8/23/24

Existing Home Sales.

In July, existing home sales experienced a slight uptick but remained below levels seen a year ago, as high interest rates continue to temper a previously hot real estate market. Existing home sales volumes rose by 1.3% compared to June but were still down -2.5% from July 2023. The median sales price increased modestly by 4.2% year-over-year, reaching $422,600.

Additionally, inventory levels rose from the same time last year, reaching four months of supply. This change comes as affordability shows signs of improvement, with 30-year mortgage rates trending lower throughout the summer months and may be headed lower with potential rate cuts on the horizon.

New Homes Sales.

Sales of newly built homes rose unexpectedly in July, as falling mortgage rates spurred a jump in demand for home builders. A total of 739,000 new homes were sold in the month, marking a 10.6% increase from June and a 5.6% rise from a year ago. The median sales price of a new home sold in July was $429,800, up from June’s $416,700, though still 1.4% lower than a year ago. Both existing and new home markets received an unexpected boost from lower mortgage rates in July, contributing to the increased sales activity.

Leading Indicators.

The Leading Economic Index, or LEI, aims to provide an early indication of significant turning points in the business cycle and insights into where the economy is heading in the near term. In July, the LEI fell by -0.6% to 100.4, following a decline of -0.2% in June. Over the six months ending in July 2024, the LEI decreased by -2.1%, which is a smaller rate of decline compared to the -3.1% drop seen over the six-month period from July 2023 to January 2024.

By category, the ISM Index of new orders saw the most significant drop in July, followed by the impact of an inverted yield curve and declining consumer expectations for business conditions. While the LEI continues to fall on a month-over-month basis, the six-month annual growth rate no longer indicates a recession ahead, another indication that the US may be headed for a soft landing.

Recession Indicators.

This week saw updates for several key economic indicators: the ADS (Aurora Diebold Scotti Business Conditions Index), the LEI (Leading Economic Indicators Index), and the CFNAI (Chicago Fed National Activity Index). The ADS remained in bearish territory last week, continuing a trend that has persisted for several weeks. Similarly, the LEI also remained bearish, indicating a potential slowdown ahead, although it does not suggest a full-blown recession.

The CFNAI, which measures economic activity and inflation through factors such as production, employment, consumption, housing, and inventory metrics, turned bearish this week after previously being neutral. This shift was driven by declines in production, income, and employment components.

While some indicators have become more bearish in recent months, we remain cautiously optimistic for a soft-landing scenario, especially as the Federal Reserve appears more committed to cutting rates in the coming months.

Summary

Stocks continued their rally last week following a dovish speech by Fed Chair Jerome Powell at Jackson Hole, signaling that the Fed will likely soon cut rates, with markets now expecting up to 100 basis points of cuts by year-end. The real estate market showed an increase in new and existing home sales in July as mortgage rates have trended lower. Despite declines in the Leading Economic Index and other recession indicators, optimism remains for a soft landing as the Fed appears committed to lightening monetary policy before labor market conditions deteriorate.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.

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