Market Month: August 2024

"Stocks closed mostly higher in August,"  by Wendy Nelson 

The Markets (as of market close August 30, 2024)

Stocks closed mostly higher in August, buoyed by a strong close to the month.  Favorable inflation data and economic reports helped drive stocks higher toward the end of the month as investors took heed of Federal Reserve Chair Jerome Powell's statement that it is approaching time to lower interest rates.  The Global Dow led the benchmark indexes, with the S&P 500, the Dow, and the NASDAQ all ending the month higher.  The Russell 2000 wasn't able to keep pace as it closed the month lower.  Despite the strong finish, stocks rode a bumpy ride, falling lower mid-month as investors worried that the economy was slowing, and the Fed didn't react in time to stem the negative tide.  However, as more favorable economic reports emerged and the Fed seemed ready to ease its restrictive monetary policy, investors were ready to jump back into the market.  Among the market sectors, only consumer discretionary and energy declined, while real estate and consumer staples advanced the most.

Inflationary data showed price pressures continued to stabilize in July.  The 12-month rates for the Consumer Price Index (CPI) and the personal consumption expenditures (PCE) price index each came in at 2.9%, as they inched closer to the Federal Reserve's 2.0% target range.  Since 2018, the annual inflation rate has dropped notably from a high of 9.1% in mid 2022.  Prices for commodities that are prevalent for most households, such as food at home, gasoline, new and used motor vehicles, and apparel, changed very little over the year.  Shelter costs were up 0.4% in July and up 5.1% compared to July 2023.  Shelter costs are decelerating only slowly and still a significant contributor to upward price pressure on services.

Growth of the U.S. economy continued at a modest pace, despite the Fed's restrictive monetary policy.  The gross domestic product (GDP) met expectations after increasing 3.0% in the second quarter following a 1.4% increase in the first quarter (see below).  Consumer spending, the largest contributor in the calculation of GDP, rose 2.9%, with spending rising in durable goods, nondurable goods, and services.  Gross domestic income, another indicator of the health of the economy, rose 1.3% in the second quarter.  Moderate economic growth should be another plus as the Fed weighs its current monetary policy.

Job growth continued to slow in July, falling short of expectations.  Downward revisions to estimates for June and May clearly show that average monthly gains in the second quarter of the year (177,000) are well below the average gains in the first quarter (267,000).  Wage growth declined 0.3 percentage point over the past 12 months.  New weekly unemployment claims decreased from a year ago, while total claims paid increased (see below).

Nearing the end of Q2 corporate earnings season, S&P 500 companies are reporting mixed results.  About 91% of the S&P 500 companies have reported results.  Of those companies, 78% reported earnings per share (EPS) above estimates, which is in line with the five-year average of 77% and higher than the 10-year average of 74%.  Overall, as of August 12, the index reported an aggregate earnings growth rate of 3.5%, which is below the 5-year average of 8.6% and below the 10-year average of 6.8%.  In general, the market has rewarded companies that reported positive earnings surprises with price increases, while companies that fell short of earnings expectations have generally seen their stock values dip.

Sales of both existing homes and new homes rose in July (see below).  While home sales remain a bit sluggish, buyers are seeing more choices partly due to more inventory and slightly lower mortgage rates.  Higher mortgage rates have slowed sales, with inventory expanding and the sales process lengthening.  According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.49% as of August 15, up from 6.47% one week ago, but down from 7.09% from one year ago.

Industrial production retracted in July from June, which saw a 0.3 percentage point revision lower.  Manufacturing output decreased in July and was 0.1% above its year-earlier level.  Within manufacturing, durables manufacturing declined 0.9% but nondurables rose 0.4%.  In July, the manufacturing sector retracted in for the first time in seven months, while the services sector saw a notable expansion of business activity.

Bond yields fell as bond prices increased in August.  Ten-year Treasury yields generally closed the month lower.  The two-year Treasury yield dropped 3.7 basis points to about 3.93% on the last trading day of August.  The dollar weakened against a basket of world currencies, driven lower by the anticipated interest rate cuts later in the year.  Gold prices hit a record high of $2,535.30 to close out August.  Crude oil prices declined, as investors anticipated a supply increase by OPEC+ in October and decreased demand in China.  Gasoline prices hit an eight-month low, as the retail price of regular gasoline was $3.313 per gallon on August 26, $0.158 below the price a month earlier and $0.500 less than the price a year ago.

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• LAST WEEK'S ECONOMIC NEWS
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Wendy Nelson, CEO of Wind River Wealth Advisors, aims to provide beneficial investment management, retirement planning, financial planning, asset management, and portfolio management to protect your money with knowledgeable strategies and plans by utilizing a personal independent financial advisor.