This is our weekly market update where we start in the US, cross to Europe and Asia and end in Australia, while also covering the action in commodities and crypto along the ways.
My analogy of traders on a boat, running from one side of the deck to the other still holds, as the recession iceberg melts away for now, and an immaculate US soft landing is back in vogue. The change in sentiment was driven by a flurry of data which showed US economic resilience, and this drove stocks to their best week this year, coupled with dip buyers stepping in after the recent rout. So, Wall Street posted its best seven-day run in almost two years while the VIX slid back to 14.80.
Of course, traders have struggled to forecast where the economy is headed – and the recession fears that helped drive the recent pullback could resurface again just as quickly as they faded. On top of that, the US elections and geopolitical tensions are adding other elements of uncertainty.
But beneath the surface, there are some reassuring signals. Specifically, the latest jobs data was better than previous ones, the CPI data showed a drift in the right direction, along with producer prices, consumer sentiment improved with the August University of Michigan consumer sentiment survey reading of 67.8, up from July’s 66.4. and retail sales were up. Just don’t mention the poor construction data with weak July housing starts and building permits data. Central bankers are being quote, data dependent, so no surprise then when new data arrives traders change tack.
Federal Reserve Bank of Chicago President on Friday told National Public Radio that the U.S. economy is not showing signs of overheating, so central bank officials should be wary of keeping restrictive policy in place longer than necessary. “You don’t want to tighten any longer than you have to,” Goolsbee said. “And the reason you’d want to tighten is if you’re afraid the economy is overheating, and this is not what an overheating economy looks like to me.”
Note also the earlier selloff hit a relatively small slice of the market, with nowhere near the breadth of the routs set off by the Fed’s rate hikes, the pandemic and other pivotal events. And while valuations are at risk of another recalibration if the economy does wind up sputtering, the S&P 500 during the recent retreat held above a threshold that – to technical analysts, at least – telegraphs investors’ continued confidence.
The Dow ended up 0.24%, the S&P 500 rose to around 5,555 up 0.2% For the year, the S&P 500 is up more than 16% and is within about 2% from its July all-time closing high. The NASDAQ rose 0.2%. Most megacaps gained, with Nvidia leading the charge, up 1.4% and has bounced more than 20%, while the Philadelphia SE Semiconductor index has gained more than 14% from recent lows. Small-cap shares, which had been strong performers in July, have also recovered from recent lows, with the Russell 2000 up nearly 5%. Nike had its longest winning streak in more than eight years and up 0.88% on the day though Applied Materials sank 1.86% after a sales forecast that disappointed investors looking for a bigger payoff from artificial intelligence spending. If you are an AI fan, like Wedbush, then the outlook looks rosy, saying the tech sector is on the brink of substantial growth, underpinned by the expanding influence of AI. Just remember Cisco, though. The firm emphasized the foundational role of cloud and AI technologies in the ongoing “4th Industrial Revolution.”
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