The stock market rallied impressively this week, with all major indices posting solid gains. The Dow Jones Industrial Average and Russell 2000 each climbed 2.9%, while the S&P 500 jumped 3.9%. The tech-heavy Nasdaq Composite led the pack with a whopping 5.3% increase.
What sparked this bullish sentiment? It all started with a series of encouraging economic reports:
- The Producer Price Index for July showed disinflation in both total and core PPI
- The Consumer Price Index for July met expectations
- Retail sales for July surpassed expectations
- Weekly jobless claims indicated ongoing strength in the labor market
These positive indicators helped ease concerns about a weakening economy that had been stirred up by the July jobs report. Even a disappointing housing starts and building permits report on Friday couldn’t dampen the market’s enthusiasm.
In the corporate world, we saw some significant developments. Walmart (WMT) and Cisco (CSCO) reported solid earnings and provided optimistic commentary about consumer behavior, contributing to the market’s upward momentum. Home Depot (HD) closed 3.9% higher despite reporting below-consensus guidance, demonstrating investors’ overall positive sentiment.
A notable leadership change occurred at Starbucks (SBUX), with CEO Laxman Narasimhan stepping down and being replaced by former Chipotle (CMG) CEO Brian Niccol. This news had a significant impact on both companies’ stock prices.In the M&A space, Mars confirmed its acquisition of Kellanova (K) for $83.50 per share in cash, totaling $35.9 billion including debt.
Alphabet (GOOG) faced some headwinds after a Bloomberg report suggested that the Department of Justice might be considering breaking up the company following last week’s court ruling on antitrust violations.
All 11 S&P 500 sectors closed higher, with consumer discretionary (+5.2%), information technology (+7.5%), and financials (+3.2%) leading the charge.
US Market Highlights
Let’s dive into some key developments in the US market:
- Rate cut expectations: The market is pricing in four rate cuts for 2024, with a 25% chance of a 50 basis point reduction at the September FOMC meeting. This optimism is fueling bullish sentiment.
- Inflation cooling: The CPI eased to 2.9% in July, its lowest level since March 2021. Wholesale inflation saw an even sharper decline, plummeting to 2.2% from June’s 2.7%.
- Strong consumer spending: Retail sales grew by a robust 1% in July, significantly outpacing forecasts. Excluding autos, sales rose 0.4%, beating the 0.1% expectation.
- Corporate shake-ups: Starbucks made headlines by hiring ex-Chipotle CEO Brian Niccol to replace Laxman Narasimhan. This news sent Starbucks shares soaring 25%, while Chipotle’s stock took a 10% hit.
- CHIPS Act beneficiary: Texas Instruments is set to receive up to $1.6 billion through the CHIPS Act to support the construction of three new facilities. The company has committed $18 billion in investments through 2029 for these projects.
- Political developments: Vice President Kamala Harris unveiled her economic policy goals for the first 100 days in office, including price fixing, aka Communism. This comes after stealing Trump’s idea of “no tax” on tips. The DNC is having its convention this week, so expect the political season to get crazier.
Global Highlights
The global economic landscape remains complex:
- China’s struggles: The world’s second-largest economy continues to face headwinds, with property investment plunging 10.2% and urban unemployment rising to 5.2%.
- Japan’s surprise: Japan’s Q2 GDP growth accelerated to 3.1%, handily beating the 2.1% consensus estimate. This could prompt the Bank of Japan to consider future rate hikes.
- UK’s recovery: The UK economy grew 0.6% in Q2, continuing its recovery from recession. However, challenges like weaker wage growth and high interest rates may slow future growth.
- European industrial woes: Industrial activity in Europe contracted for the third consecutive month, with Germany feeling the brunt of the manufacturing slump.
- Innovative air travel: Wizz Air launched a €500 ‘all you can fly’ annual subscription in Europe, allowing passengers to book flights to international destinations up to three days before departure.
Commodities & Crypto Corner
Energy: Oil prices are wobbling like a tightrope walker after a few too many. Brent closed at $79.50 per barrel, while WTI’s hanging around $75.50. It’s a tug-of-war between geopolitical jitters and unexpected increases in US stockpiles.
Metals: Copper prices in London hit $9,148 per ton, defying China’s economic hiccups like a rebellious teenager. Gold reached a new peak at $2,500 per ounce. It’s shining brighter than my forehead after a long day of trading.
Crypto: Bitcoin played it cool at $58,500, while Ethereum inched up 2%. Bitcoin Spot ETFs in the US saw less action than a library on a Friday night, with only $150 million in flows since Monday. It’s been quieter than a mime convention.
Calendar – The Week Ahead
As the financial world turns its attention to the picturesque Grand Teton mountains, the Federal Reserve’s Jackson Hole symposium from August 22-24 takes center stage. This annual gathering of economic luminaries promises to be a pivotal moment for market watchers and policymakers alike.
Fed Chair Jerome Powell’s Friday address looms large on the agenda. His words will be meticulously parsed for clues about the central bank’s next moves, especially regarding interest rates and inflation targets. With recent economic data painting a complex picture, Powell’s remarks could set the tone for monetary policy in the months ahead.
Beyond Powell’s speech, the symposium offers a rare opportunity for candid discussions among global financial leaders away from the pressures of day-to-day market fluctuations. Expect lively debates on topics ranging from the impact of artificial intelligence on labor markets to the challenges of climate change for economic stability.
While Jackson Hole commands the spotlight, other key events warrant attention:
- Housing Market Pulse: The release of new home sales data will provide insights into the real estate sector’s health amidst shifting mortgage rates.
- Fed’s Inner Workings: Minutes from July’s Federal Open Market Committee meeting will offer a deeper look into the Fed’s decision-making process.
- Corporate Earnings Barometer: Retail giants Target and TJX will report earnings, offering a window into consumer spending trends. Meanwhile, Palo Alto Networks’ results could illuminate the state of cybersecurity demand, and Baidu’s performance may shed light on China’s tech sector.
As we digest these events, it’s worth remembering that financial markets are inherently unpredictable. While historical trends can inform our understanding, they don’t dictate future outcomes. Prudent investors focus on building diverse portfolios aligned with their long-term goals, rather than chasing short-term market movements.
