Major U.S. stock market indexes rose last week, as the S&P 500 increased by 1.45%, the Nasdaq 100 traded higher by 1.09%, and the Dow Jones Industrial Average rose by 1.27%.
Fed Minutes: Rate Cut in Focus
The most recent Fed meeting minutes contributed to last week’s broader gains in major U.S. stock market equity indexes. Notes from the July meeting showed that officials are poised to cut interest rates, plan to move forward with a cut in September, and even considered one at the previous meeting.
While all officials voted to hold rates steady at the July meeting, an unspecified number of them were inclined to start easing at the July meeting rather than waiting until September.
The July meeting minutes indicated that a rate cut is likely to occur in September. With the September meeting about a month away, we will see what happens next.
Jackson Hole Symposium
Markets like clarity and certainty, so all eyes were on the Jackson Hole Symposium last Friday afternoon to see if Federal Reserve Chair Jerome Powell could add some color or virtually confirm the Fed’s potential direction for the rest of this year.
Powell had some choice words: “The time has come” for rate cuts. Policymakers do not want to see the job market cool any further.
Powell is remembered for his commentary at the 2022 Jackson Hole Symposium, where he warned 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 during the 2022 meeting.
Potential Market Response
Major U.S. stock indexes responded to those 2022 comments to the downside after the September meeting. Buyers then emerged in October 2022.
But this year’s meeting featured a different takeaway — one of inflation-busting success and impending rate cuts.
“My confidence has grown that inflation is on a sustainable path back to 2%,” Powell said in his keynote speech at the Fed’s annual economic conference in Jackson Hole.
This tone was positively interpreted by markets at the close of last week.
U.S. Dollar Declines Last Week
In a mostly “risk-on” style of trading last week, the U.S. dollar fell against other major currencies, contributing to gains in dollar-denominated assets, including gold and bitcoin. Overall:
So, it was one of those weeks where declining bond yields and a declining dollar positively impacted many risk assets.
By nature, many traders, however, are looking for a bottoming dollar via the US Dollar Index (DXY), as the index value’s decline approaches the key psychological level of 100.00. The DXY measures the strength of the US dollar against a basket of six other currencies.
Government Bond Yields Fall
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 trending lower since April, even though the seemingly forever-anticipated rate cuts haven’t occurred yet.
Let’s remember that markets, in general, are forward-looking price discovery mechanisms. Perhaps the bond market has been trying to tell us something or potentially confirm the Fed’s course for quite some time.
Existing Home Sales Tick Higher
For the first time in five months, existing home sales data for July showed gains in closed transactions.
At an annualized rate of 3.95 million units, gains were a tad better than expectations for 3.94 million units. That’s a 1.3% rise from June. Year-over-year, the number of closed sales was 2.5% lower, however.
Declining mortgage rates over the last month or two played a role in the pickup in transactions. All-cash closed transactions made up 27% of closings in July versus 26% last year.
Nationwide median sales prices, however, did not cool, even with an increase in supply. The average closed transaction price was $442,600 in July, 4.2% higher than a year ago.
Doesn’t sound right? That’s the national data, and here is the associated methodology. Sales saw the biggest gains in the Northeast and were flat in the Midwest.
Payrolls Revision
Last week, nonfarm payrolls were substantially revised (-0.5%) — the largest revision since 2009. The revision measures total nonfarm payrolls over the preceding 12-month period. The data comes via an annual benchmark revision by the Bureau of Labor Statistics.
That’s 818,000 payrolls cut from the last 12 months (-0.5%). Food for thought!
The Takeaway
The time has come for rate cuts. Powell said so in the annual Jackson Hole Symposium last week, and the market is eagerly awaiting them. Fed minutes also showed the collective acceptance of rate cuts and the willingness of the Fed to cut rates sooner rather than later.
The declining dollar last week could help to spur asset prices in the short-run, yet the U.S. Dollar Index is approaching potential support levels.
The annual Jackson Hole Symposium indicated an accommodating Fed in general (i.e., a Fed that is ready to cut and a Fed that does not want to see any more decreases in labor markets). The Fed should live in traders’ and investors’ minds this week, yet we are in an election season.
Moving Forward
For major economic data releases this week, we get consumer confidence, weekly unemployment claims, gross domestic product (GDP) data, and Core Personal Consumption Expenditures (PCE) Price Index — the Fed’s preferred inflation gauge.
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