DFG Navigator Archives | August 2024

Your Capital Markets Snapshot: Capital Markets Were Largely in a Holding Pattern

Last week, the capital markets were largely in a holding pattern, awaiting insights from the Federal Reserve's annual symposium in Jackson Hole, Wyoming. The much-anticipated speech by Fed Chair Powell on Friday provided some key takeaways for investors, including the expectation that interest-rate cuts will commence in September. The Fed held its policy rate steady for over a year, but recent commentary suggests sufficient progress has been made on inflation to warrant a shift in policy to focus on employment. The markets responded positively to Powell's dovish message, with stocks rallying and Treasury yields falling in anticipation of the upcoming rate cuts. However, the path to rate cuts may not be consistent, with cuts and pauses interspersed over the coming months as the Fed closely monitors future economic releases and seeks to avoid further deterioration of labor markets and economic slowdown.

Your Capital Markets Snapshot: Stocks Posted One of Their Largest Weekly Gains

Stocks posted one of their largest weekly gains of the year following the pullback in recent weeks. Last week’s rally was driven by encouraging economic data, including continued reports of moderating inflation and a positive surprise on retail sales. Initial jobless claims came in below expectations for the second week in a row, which may suggest the recent increase in the unemployment rate could be due to an increasing labor pool size and not increasing layoffs. While data continues to suggest slowing growth of the economy, last week’s releases indicated the U.S. economy remains healthy and helped ease recession fears. As the September meeting draws nearer, expectations remain high for a potential interest rate cut by the Federal Reserve, with many hoping for a signal during Fed Chair Powell's speech this week at the Jackson Hole Symposium.

Your Capital Markets Snapshot: Mixed Performance Across Asset Classes

The first week of August saw mixed performance across asset classes and ended with a two-day selloff in the equity markets. Multiple data points suggest a softening labor market (nonfarm payrolls well below expectations, increasing unemployment rate triggered two recession indicators, above expectation initial jobless claims, and above expectation number of job openings) and a downward revision to GDP growth helped contribute to the downside volatility. Resulting from the increased uncertainty, we saw the VIX Index hit a one-year high breaking above 29 on Friday. While not guaranteed to repeat, historically large VIX spikes have signaled a near-term market bottom in stocks.

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