Major U.S. stock market indexes declined last week, as the S&P 500 fell by 2.11%, the Nasdaq 100 traded lower by 2.22%, and the Dow Jones Industrial Average decreased by 2.21%.
Perhaps the most recent Federal Reserve meeting minutes contributed to last week’s broad asset price declines. Notes from July’s Fed meeting showed that Fed officials see “upside risks” to inflation, potentially leading to more rate hikes. However, Fed officials were ultimately divided on the need for more rate hikes at the July 25-26 meeting.
Some officials cited the economic risks of rising rates further, while others continued to prioritize getting inflation under control through further rate hikes.
Jackson Hole Symposium
Markets like clarity and certainty, so eyes will be on the Jackson Hole Symposium this week.
Last year, Federal Reserve Chair Jerome Powel warned at this meeting of economic pain. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said.
U.S. Dollar Rises, Commodities, Cryptocurrencies Decline
In a mostly “risk-off” style of trading last week (meaning investors were risk-averse), the U.S. Dollar rose against other major currencies last week.
This contributed to declines in dollar-denominated assets, including oil, gold, and crypto.
Government Bond Yields Rise
Markets like certainty, and if they can’t have that, they look to bond yields for clues about the direction of the U.S. economy.
Notably, Treasury yields have been rising for the last few weeks, even though the recent prevailing summer narrative was that the end of rate hikes was in sight (which should have led to lower yields).
Perhaps the bond market is trying to tell us something. In case you’re curious, this CNN article briefly but clearly explains the relationship between yields, the stock market, and interest rates.
Retail Sales Unexpectedly Strong
.
Consumer resilience is nothing short of amazing, as data for July showed a surprise uptick in spending. Can it continue?
Here are July’s highlights:
Americans have been continuing to spend impressively. However, credit card debt continues to rise, and savings have been drying up.
Perhaps the talk in recent months of inflation beginning to recede has motivated consumers to spend, but let’s remember that credit card bills always come due.
The Takeaway
The narrative could shift to a potentially “higher for longer” interest rate hike campaign, given a divided Fed and rising bond yields. Markets will seek clarity this week out of Jackson Hole.
Retail sales provided a bright spot in sentiment last week in an otherwise risk-averse market that saw higher bond yields and a higher U.S. dollar.
Perhaps the short-term negative sentiment is overdone, perhaps it is not. It ultimately doesn’t matter for long-term investors, although some may use lower equity prices to increase asset allocation, should risk tolerance and investment objectives warrant such a move.
…..
Links to third-party websites are for general information purposes only and do not constitute any offer or solicitation to buy or sell any services or products of any kind. The other parties are responsible for the content on their website(s). You are encouraged to read and evaluate the privacy and security policies on the specific site you are entering. They are not intended and should not be relied upon as investment, insurance, financial, tax, or legal advice.