GENERAL MARKET NEWS
Following hawkish messaging from the Federal Reserve (Fed)’s economic symposium at the end of August, market participants look toward the next rate decision set to take place on September 21. Current conditions point to a fairly even split between expectations for an increase of 50 and 75 basis points (bps). Recent employment data has been encouraging and lends some flexibility and support for hawkish moves in the coming months. Although the preliminary results for August show a small increase in the unemployment rate to 3.7 percent, that rate is still in a comfortable spot and was accompanied by a strong month of 315,000 jobs added. Initial jobless claims also fell in the final week of August, pointing to a labor market that remains tight—even in the midst of relatively weak economic growth. U.S. Treasury yields were up across the curve last week. The 2-year, 5-year, 10-year, and 30-year rose 8 bp (to 3.48 percent), 17 bps (to 3.38 percent), 21 bps (to 3.25 percent), and 18 bps (to 3.37 percent), respectively.
The markets sold off again last week as they continue to give up post-June rally gains following a reiteration of tighter policy from the Fed. Global central banks echoed this sentiment with the European Central Bank widely expected to hike 75 bps this week. The continued tightening by developed market central banks has led to concerns around overall global growth. As a result, markets maintained their recent risk with utilities, health care, communication services, and consumer staples as the top- performing sectors last week. Materials, technology, and REITS underperformed, and semiconductors sold off as the U.S. announced a ban of advanced AI chips to China. Nvidia (NVDA) was hit hard—selling off more than 16 percent—and American Micro Devices (AMD) fell more than 12 percent. Walmart (WMT), Target (TGT), and Dollar General (DG) outperformed while health care names such as McKesson (MCK), Abbott Labs (ABT), and Cardinal Health (CAH) also fared well.
On Tuesday, the Conference Board Consumer Confidence Index for August was released. Confidence increased more than expected; the index rose from 95.7 in July to 103.2 against calls for an increase to 98. This better-than-expected result, which snapped a streak of three consecutive months with declining confidence, was fueled by improved consumer expectations. Despite the improvement, the index remains well below the pandemic-era high of 128.9 from June 2021. We’ll likely need to see a continued slowdown in inflationary pressure before the index can recover to recent highs.
Friday saw the release of the August employment report, which showed that 315,000 jobs were added during the month, better than the 298,000 expected by economists. This represents a strong month of job growth on a historical basis and likely supports Fed plans for tighter monetary policy at its September meeting. Although the unemployment rate rose from 3.5 percent to 3.7 percent during the month, it was largely due to an influx of workers returning to the labor market, which is a positive development. This was another strong employment report that showcased the strength of the labor market.
WHAT TO LOOK FORWARD TO
On Tuesday, the ISM Services index for August will be released. Economists expect service sector confidence to decline from 56.7 in July to 55.2. This is a diffusion index, where values above 50 indicate growth, so this would still signal an expansionary level of service sector confidence. Given still relatively strong levels of consumer demand for services, it’s possible the index will beat expectations for August, which would be a good sign for the health of the overall economy.
| Equity Index | Week-to- Date | Month-to- Date | Year-to-Date | 12-Month |
| S&P 500 | –3.23% | –0.75% | –16.78% | –12.16% |
| Nasdaq Composite | –4.18% | –1.56% | –25.25% | –23.74% |
| DJIA | –2.85% | –0.60% | –12.54% | –9.66% |
| MSCI EAFE | –3.01% | –1.97% | –20.24% | –21.63% |
| MSCI Emerging Markets | –3.41% | –2.63% | –19.31% | –23.96% |
| Russell 2000 | –4.70% | –1.85% | –18.70% | –20.05% |
| Fixed Income Index | Month-to- Date | Year-to-Date | 12-Month |
| U.S. Broad Market | –0.21% | –10.94% | –11.64% |
| U.S. Treasury | –0.19% | –10.15% | –10.87% |
| U.S. Mortgages | –0.06% | –9.12% | –9.79% |
| Municipal Bond | –0.54% | –9.12% | –9.09% |
Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed- rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed- rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.
Authored by the Investment Research team at Commonwealth Financial Network.
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