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August 26, 2024

Beacon Weekly Investment Insights 8.26.24

Portfolio Manager, Lee Delaporte, provides insights to guide you through changing market conditions. Please read the full text below or download the PDF version.

There was an abundance of economic data this week that will be addressed later because, for the most part, the market was awaiting Chair Powell’s Jackson Hole speech on Friday morning. As hoped for he delivered the comments that have been yearned for by investors for some time and he did not disappoint. The following are a few of the salient points of his brief speech:

The time has come for policy to adjust; the direction of travel is clear.
My confidence has grown that inflation is on the path to 2%.
Less upside risk to inflation; more downside risk to employment.
It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon.
We do not seek or welcome further cooling in labor market conditions.
We will do everything to support a strong labor market.
The economy continues to grow at a solid pace.
The future pace of rate cuts will depend on incoming data, the evolving outlook and balance of risk.

Though he was cautious not to tip his hand on the timing or degree of the rate pivot he, by all indications, acknowledged that inflicting more pain with higher unemployment was unnecessary and that a soft landing was achievable. With the acknowledgement that labor, not inflation, seems to be the focus of concern does the debate shift, between now and the September meeting, to a more aggressive response to get ahead of higher unemployment. This will become clearer on September 5th with the next non-farm payroll report. A further rise in unemployment results in less consumption and accelerating layoffs; an unappealing scenario for policy makers. That said, clearly the markets will be disappointed if there’s no follow through at the September meeting based on this speech.

Throughout his comments the markets reacted favorably to what they heard ending the week strongly. All the major equity benchmarks ended higher with the Dow rising 1.27%, the S&P 500 up 1.45%, and the Nasdaq increasing 1.40%. As mentioned frequently our prediction that the market would broaden out beyond just a select few names and sectors appears to be materializing as the equal weight S&P 500 has risen 4% so far in the third quarter.

As mentioned earlier there were other economic releases worthy of note. Existing Home Sales grew 1.3% in July to a seasonally adjusted annual rate of 3.95 million units halting a four-month sales decline. Sales though fell 2.5% y/y down from 4.05 million. This improving trend could persist as declining rates impact mortgages stimulating supply and demand. During the week the 30- and 15-year fixed rate averaged 6.46% and 5.62% respectively. The Bureau of Labor Statistics revised job growth down 818,000 throwing cold water temporarily on the market; only to evaporate post- Jackson Hole.

This was the largest downward revision to job growth in more than a decade. The Purchasing Managers Index (PMI) for July came in at 46.8 vs the previous reading of 48.5 evidencing continued contraction.

Though 2Q corporate earnings reports are largely over and close to 80% beat expectations; the upcoming Nvidia report on Wednesday will capture everyone’s attention and, most likely, be market moving. Nvidia has set expectations for, not only a significant beat versus expectations, but a raise for the upcoming quarters and year.

The market anticipates $0.65 per share and $28.7B in revenue. Jensen Huang’s comments on the outlook will be key.

Market Scorecard:	8/23/2024	YTD Price Change
Dow Jones Industrial Average	41,175.08	9.25%
S&P 500 Index	5,634.61	18.13%
NASDAQ Composite	17,877.79	19.10%
Russell 1000 Growth Index	3,659.21	21.40%
Russell 1000 Value Index	1,791.25	12.00%
Russell 2000 Small Cap Index	2,218.70	9.45%
MSCI EAFE Index	2,413.44	6.19%
US 10 Year Treasury Yield	3.795%	5 basis points
WTI Crude Oil	$74.76	5.09%
Gold $/Oz.	$2,548.70	21.06%