LSA Connect

Economic Update 9-16-2024

• Economic data for the week included producer price inflation continuing to decelerate, as did consumer price inflation to some degree, although rising shelter costs remain a persistent influence. Consumer sentiment came in a bit better than expected, although expectations for future inflation were mixed.

• Stocks saw gains globally as markets digested central bank policy easing and the close U.S. Presidential election. Bonds fared positively across the board as yields fell. Commodities rose across the board, due to the strength in metals.

U.S. stocks saw gains last week, to reverse the negativity of the prior week. They also shook off mixed results mid-week that included the relief of decelerating CPI but perhaps not enough to fully satisfy the Fed, in addition to perhaps the strong debate performance by Vice President Harris, which Wall Street viewed as raising the odds of higher taxes and regulation, and a less corporate-friendly environment generally. The magnitude of the upcoming Federal Reserve rate cut (as in -0.25% or -0.50%) remained an open question by week’s end.

Economic Update 9-09-2024

• On the Labor Day-shortened week, economic data included ISM manufacturing and services gaining some ground, a continued reduction in job openings, and an employment situation report coming in largely as expected (and an improvement on the prior month’s disappointment).

• Equities lost ground globally for the week with concerns over the broader economy and labor markets in the U.S. Though, bonds fared well as yields fell sharply. Commodities fell back led by weaker oil prices due to future demand worries.

U.S. stocks suffered the worst weekly declines in over a year and a half, but representing the third meaningful drawdown this year. By sector, only consumer staples saw a small gain, while all others ended in the negative, led by technology (-7%), energy (-6%), and materials. The sizable technology drop was fueled by NVIDIA down -14%, following rumors about it being subject to a Justice Department antitrust probe, resulting in the largest dollar market cap loss on record. (Moderate changes in trillion-dollar market cap sizes have tended to be record setting.) Real estate also gained slightly, along with lower yields.

Economic Update 9-03-2024

• Economic data for the week included U.S. GDP growth for Q2 revised upward, along with higher durable goods orders and consumer confidence, in addition to gains in personal income and spending. Home prices remain strong on a trailing annual basis, although the pace has decelerated.

• Equities were mixed, with value outperforming growth sectors and foreign stocks. Bonds generally fell back as yields ticked up a bit across the curve. Commodities were mixed, with energy and metals prices down for the week on demand concerns.

U.S. stocks were mixed on the lower volume last week of summer, with ‘value’ seeing gains of over a percent, while ‘growth’ fell back. Sector results reflected this, with financials gaining 3% on the week, followed by industrials and materials; on the other hand, technology stocks fell back by over -1% (largely the impact of NVIDIA), along with lesser declines in consumer discretionary (Tesla and Target). Real estate saw minor gains, despite higher yields during the week.

Economic Update 8-26-2024

• Economic data for the week included stronger new and existing home sales reports, along with mixed PMI manufacturing and services sentiment, and a weaker month from the index of leading economic indicators.

• Equities gained globally last week, along with further hints of easing central bank policy. Bonds similarly gained as yields fell. Commodities were mixed, with stronger metals and weaker crude oil prices.

U.S. stocks ended positively for the week, despite low summer trading volumes, with decent economic results and the dovish tone of the FOMC July minutes. Gains culminated on Fri. by the further dovish tone of Fed Chair Powell’s Jackson Hole speech. Nearly every sector saw gains last week, led by materials, consumer discretionary (largely helped by Target and TJX), and industrials, while energy experienced a minor decline. Real estate also rose nearly 4% on the sentiment surrounding lower rates, which has been one of the primary drivers of that sector in the near-term. Small cap reacted especially strongly to the hints of upcoming rate cuts, as would be expected. Focus remains on the consumer, with added sensitivity to signs of potential weakness in corporate earnings commentary, as well as the mix of product type and purchaser demographic/income level.

Economic Update 8-19-2024

• Economic data for the week included both producer and consumer price indexes coming in lower, showing continued deceleration toward more normal levels. Retail sales and consumer sentiment improved, while industrial production and housing starts declined, with the latter likely driven by weather-related events.

• Equities gained ground globally, following a week of high volatility, with both the U.S. and foreign markets seeing similar gains. Bonds also fared well as yields fell in response to decelerating inflation. Commodities were mixed with metals up and energy down, despite higher Middle East tensions.

U.S. stocks reversed course from the prior week’s volatility, earning the best weekly returns in a year. By sector, growth leadership resumed with technology gaining nearly 8% (led by a 20% rise in NVIDIA), followed by consumer discretionary up over 5% (with Starbucks gaining sharply after appointing a new CEO from Chipotle). Laggards included communications, as well as energy and utilities, all of which were up only about a percent. Real estate was only slightly positive. Interestingly, declines in Alphabet/Google have been somewhat muted considering the U.S. Justice Department’s interest in potentially breaking up the firm due to what are claimed to be monopolistic practices.

Economic Update 8-12-2024

• In a week of limited economic data, reports included improvement in ISM services indexes, while jobless claims fell back from recent higher levels.

• Equities continued to experience the highest levels of volatility in months, with a net result of little change for the week in the U.S. and small gains in foreign markets. Bonds fell back generally, along with a backup in yields. Commodities saw gains, led by crude oil as demand worries faded a bit.

U.S. stocks experienced one of the more interesting weeks in some time—in fact, it featured the single worst and single best days since 2022. By sector, industrials and energy led with gains of over a percent each, while laggards included materials and consumer discretionary (Tesla and McDonald’s), each down over -1%. Real estate fell back only slightly, despite the sharp rise in yields, which also negatively affected small caps broadly.

Economic Update 8-05-2024

• Economic data for the week included the U.S. Federal Reserve keeping key interest rates steady, as expected. On the positive side, pending home sales rose, while negative data included ISM manufacturing, construction spending, and jobless claims. The monthly employment situation report for July disappointed, with fewer jobs and a higher unemployment rate.

• Equities fell back globally, with economic and policy concerns outweighing decent U.S. corporate earnings reports. Bonds fared quite well as interest rates plummeted across the curve. Commodities lost ground for the most part, due to demand concerns, with the exception of precious metals.

In what some have called one of the more important weeks of the year thus far, the U.S stock market did not disappoint in terms of volatility. While a Wed. rally came along with Fed hints toward a September start to interest rate cuts, by Thu., weaker economic growth, including manufacturing ISM and jobless claims, as well as the employment report on Fri., which reversed that exuberance in a downward direction, raising some concerns the Fed has waited too long to ease and/or that their language about a Sept. cut wasn’t quite convincing enough. Non-committal language has often been the hallmark of the Fed, as it’s been more focused on keeping itself flexible in response to changing conditions; however, weakening in a few areas certainly does raise the odds for a Sep. cut, as well as potentially for cuts in Nov. and Dec. as well, as needed. In fact, after the weak July jobs report, odds have risen for a -0.50% cut by Sep. (possibly assuming a cut made in-between meetings, which the Fed can do, at the risk of raising market anxiety even further), to a year-end rate of 4.00-4.25% (implying five cuts in total). In addition, some polls have shown a slide in former President Trump’s odds versus Vice President Harris, which has caused an unwind for stocks tied to benefits of a pro-business and looser regulatory regime.

Economic Update 7-29-2024

• Economic data for the week included 2nd quarter U.S. GDP ramping back up to above-trend levels, a mixed environment for recent durable goods orders, and declines in both existing and new home sales.

• Equities were mixed last week, with gains in U.S. value and small cap, offset by declines in U.S. growth and internationally. Bonds gained along with falling yields, as inflation remained contained. Commodity prices fell across the board last week, led by energy and metals.

U.S. stocks were mixed again last week with ‘value’ ending in the positive, outperforming ‘growth,’ which saw sharp declines. Small cap also ended several percentage points higher, continuing a stretch of recent rapid outperformance. By sector, utilities, health care, materials, and financials ended in the lead with gains of over 1%, while communications (Alphabet and Disney), consumer discretionary (Tesla and Starbucks), and technology lagged with declines of several percent. Real estate ticked slightly higher, as interest rates declined.

Economic Update 7-22-2024

• Economic data for the week included retail sales coming in stronger than expected, in addition to gains in industrial production and housing starts. The index of leading economic indicators continued to decline, albeit at a slower rate than the prior month. Political rhetoric on both sides appeared to be a stronger driver of investment sentiment for the week.

• Global equities lost ground last week based on a variety of concerns, notably potential tighter chip restrictions on China, which punished technology stocks. Bonds also fell back as yields rose across the board. Commodities were generally down along with a stronger dollar, with declines in industrial metals and energy.

U.S. stocks behaved unusually last week, with a sharp reversal downward in large cap growth segments, offset by better returns from cyclicals, which included value and especially strong relative results from small cap stocks. In fact, the partial recovery of small cap compared to large cap was one of the fastest in recent memory. By sector, energy led with a gain of 2%, followed by financials and consumer staples. On the negative side, technology suffered with a -5% loss (highlighted by Nvidia’s near -10% decline), along with communications and consumer discretionary, each down nearly -3%. Real estate fared positively, despite interest rates inching higher.

Economic Update 7-15-2024

• Economic data for the week included consumer price inflation coming in slower than expected, continuing a path of deceleration, while producer price inflation ticked up a bit from recent trend. Consumer sentiment continued to be negatively affected by higher price levels of the past several years.

• Global equities gained ground along with the lower U.S. inflation report and dovish central bank commentary. Bonds also fared well, along with falling yields, especially in foreign debt markets as the dollar weakened. Commodities generally lost ground for the week.

U.S. stocks saw gains last week, with small caps up sharply relative to large caps, reversing weakness from much of this year. By sector, ‘value’ outperformed ‘growth,’ with utilities, materials, and health care seeing the strongest results of around 3% or better, while communications fell by over -3% (led downward by Meta and Netflix) and minimal gains in technology. Real estate gained over 4% along with the fall in yields.

Economic Update 7-08-2024

• On a holiday-abbreviated week, economic data included ISM manufacturing and services both falling and ending June in contraction. The employment situation report was strong on a headline level, but less so under the surface, with the unemployment rate rising by a tenth of a percent.

• Equities gained ground worldwide last week, in both developed and emerging markets. Bonds also rallied as yields fell, especially in foreign markets as the U.S. dollar declined. Commodities fared well as the price of oil rose by a few percent.

U.S. stocks gained last week, with large cap growth outperforming, while small caps lagged with a decline. Fed Chair Powell’s speech at the ECB Forum on Central Banking in Portugal was taken well by markets, noting the growth in “two-sided” risks in achieving employment and inflation goals, which was a “big change” compared to a year ago. By week’s end, the June employment situation report was nuanced enough to show weakening at the edges, which was seen as potentially moving toward the path of at least some Fed easing becoming appropriate sooner than later. Earnings releases for Q2 are beginning this week, to likely take over investor attention.