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Financial Market Update – Week of 08/28

August 28, 2023

Major U.S. equity indexes were mixed last week, with tech leading the way and industrials lagging for the week.

Tallying last week, the S&P 500 rose by 0.82%, the Nasdaq 100 increased by 1.68%, and the Dow Jones Industrial Average was lower by 0.45%.

The Federal Reserve

At the annual gathering at Jackson Hole of central bankers from around the world, Federal Reserve Chair Jerome Powell said that the Fed is “prepared to raise interest rates further if appropriate” and that inflation is “too high”.

“We are attentive to signs that the economy may not be cooling as expected,” Powell said. “We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” said Powell.

Ultimately, Powell sounded rather hawkish in his commentary last Friday at the central banker gathering. Major stock indexes mostly shrugged off the comments as they were released, with the S&P 500 moving lower initially but turning higher Friday afternoon to close out the week.

Treasury Yields Mixed

The 2-year yield finally breached the key psychological level of 5.00% with conviction last week and settled near 5.08% last week. The weekly close in the 2-year yield is the highest since 2007.

10-year yields finished the week slightly lower after trading at levels also not seen since 2007. The yield on the 10-year closed the week near 4.240%, a decline from the previous week.

The 2/10 yield curve remains inverted, and last week’s trading action shows this type of trade/outlook is alive and well.

Oil Retreats

Some good news for consumers: crude oil traded lower last week for the second week in a row, hopefully translating to lower gas prices shortly.

Earlier in the summer, crude oil was on the rise for seven straight weeks, touching a high for the year earlier in August north of $84/barrel.

Jobs Data This Week

With a more hawkish-sounding Fed in the headlines, traders and investors will be paying extra attention to this week’s August jobs data release.

Last month, 187,000 new jobs were created, coming in below analyst expectations. For August, the bar is set low, with early estimates showing 170,000 jobs expected.

With the Fed citing the economy not cooling enough, this jobs report will be key.

Wrapping Up

Short-term Treasury yields have moved higher, and the Fed is broadcasting a “higher rates for longer” narrative right now.

August jobs data will be a big one on the radar for this week, setting the market tone for the fresh month of September. Fed-wise, a weak jobs number could be the best thing for equities this week.


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