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The Markets – September 09, 2024
IN THE MARKETS
The S&P 500 Index experienced its steepest weekly decline in 18 months, fueled by concerns over an economic slowdown. Information technology stocks, particularly NVIDIA, led the downturn, as rumors of a potential Justice Department antitrust investigation contributed to a significant drop in the company’s market value by around USD 300 billion. Energy stocks also struggled due to falling oil prices, while defensive sectors like utilities, consumer staples, and real estate fared better. Some attributed the decline to seasonal trading patterns, as September historically averages a 0.7% loss. Additionally, trading volumes increased with the end of summer vacations and a holiday-shortened week. The economic calendar added to the gloom, with weaker-than-expected data, including a report from the Institute for Supply Management showing continued contraction in U.S. manufacturing activity, raising fears that the Federal Reserve might have delayed easing monetary policy for too long.
U.S. MARKETS
DOW & TECH
The Dow showed a loss this week, ending the week down 2.93% to end at 40,345.41 vs the prior week of 41,563.08.
The tech-driven Nasdaq showed losses this week. NASDAQ was down 5.77% by closing this week, ending at 16,690.83 vs. the prior week of 17,713.62.
BY MARKET CAP
- Large-Cap: The S&P 500 was in the red this week. It was down 4.25%, closing at 5408.42 compared to last week’s 5648.40.
- Mid-Cap: The S&P 400 mid-cap was in the red this week, down 4.92%. It went from last week’s close of 3091.52 to 2939.41.
- Small-Cap: The Russel 2000 was down 5.69% for the week, closing at 2091.41 compared to last week’s 2217.63.
U.S. COMMODITIES / FUTURES OVERVIEW
THE VOLATILITY INDEX for 2024 (VIX)
VIX closed at 22.38 this week, a 49.2% Increase vs last week’s close of 15.00.
INTERNATIONAL MARKETS
U.S. MARKET NEWS
Mixed Job Data
Wednesday’s report from the Labor Department revealed that July job openings dropped to 7.67 million, the lowest since January 2021, marking a significant disappointment. The number of people voluntarily leaving their jobs, often seen as a strong indicator of labor market health, rose slightly but remained low after June’s downward revision to the lowest level since September 2020. On Thursday, ADP reported a modest increase of 99,000 private payrolls in August, far below expectations and the smallest gain since January 2021. The official payrolls report on Friday offered a mixed picture, with employers adding 142,000 jobs in August—below forecasts—while July’s figures were revised down to 89,000, the lowest since December 2020. However, the unemployment rate edged down from 4.3% to 4.2%, and average hourly earnings rose by 0.4%, exceeding expectations. Despite continued anticipation of a rate cut at the Federal Reserve’s September meeting, the jobs data tempered hopes for a substantial 50-basis-point cut. Interestingly, the yield on the 10-year U.S. Treasury note fell to its lowest level since May 2023 in response to the report. Meanwhile, U.S. Treasury yields declined more sharply than tax-free municipal yields, leading to more favorable muni-Treasury ratios. Traders noted that the near-term technical outlook weighed on municipal bonds as an uptick in new issues was expected, coupled with typically lighter reinvestment cash flows in the fall.
INTERNATIONAL MARKET NEWS
Europe
The pan-European STOXX Europe 600 Index fell 3.52% in local currency terms, driven by renewed concerns about global economic growth. Major European stock indexes also declined, with France’s CAC 40 dropping 3.65%, Germany’s DAX falling 3.20%, Italy’s FTSE MIB losing 3.15%, and the UK’s FTSE 100 sliding 2.33%. Yields on eurozone and UK government bonds broadly decreased. As for the European Central Bank (ECB), a rate cut in September appears likely, though views on future actions are mixed. ECB Governing Council member Gediminas Simkus indicated a clear case for a September rate cut, while doubting the likelihood of another in October, citing disinflation and sluggish growth as justifications. Meanwhile, Executive Board member Piero Cipollone noted that slowing inflation supports lowering borrowing costs, cautioning against overly restrictive policies. However, Bundesbank’s Joachim Nagel warned against premature easing due to ongoing wage growth and services inflation.
Japan
Japan’s stock markets declined over the week, with the Nikkei 225 Index dropping 5.84% and the broader TOPIX Index losing 4.2%. The markets took a sharp downturn midweek, driven by a U.S.-led sell-off in semiconductor stocks and a stronger yen, which created challenges for Japan’s export-focused companies. The yen appreciated to the mid-142 range against the USD from around JPY 145 the previous week, as expectations grew that the Bank of Japan (BoJ) might raise interest rates further this year, while the U.S. Federal Reserve appears poised to cut rates in September. Weak U.S. economic data raised recession fears, prompting investors to seek the safety of Japanese government bonds (JGBs), causing the 10-year JGB yield to fall to 0.86% from 0.90% despite solid wage growth in Japan. Real wages rose 0.4% year on year in July, supported by pay increases and summer bonuses, marking a second consecutive monthly gain and strengthening the case for further BoJ rate hikes. However, household spending remained sluggish, rising just 0.1% year on year in July despite the income growth.
China
Chinese equities fell as investors reacted to weak corporate earnings and disappointing economic data. The Shanghai Composite Index dropped 2.69%, while the blue-chip CSI 300 declined 2.71%. In Hong Kong, the Hang Seng Index lost 3.03%, according to FactSet. China’s official manufacturing PMI decreased to 49.1 in August from 49.4 in July, reflecting deeper declines in production and new orders. This index has stayed below the 50-mark, indicating contraction, for most months since April 2023. The nonmanufacturing PMI, which tracks construction and services activity, slightly improved to 50.3 in August from 50.2 in July. Meanwhile, the private Caixin/S&P Global survey, focused on smaller export-oriented firms, showed manufacturing activity expanding to 50.4 from 49.8, as new orders grew. However, the Caixin services PMI fell to 51.6 from July’s 52.1, missing expectations due to weaker new work inflows and rising input costs. These mixed PMI readings underscored the uneven performance of China’s economy, which continues to struggle with a prolonged housing market slump and rising trade tensions. New home sales by the top 100 developers fell 26.8% in August year on year, worsening from a 19.7% drop in July, suggesting the diminishing impact of the government’s May real estate rescue package and sparking speculation about additional support measures from Beijing.
HIGHLIGHTED STORY
Does the Sahm Rule Point to a US Recession
What We’re Showing:
This graphic shows the Sahm Rule recession indicator since 1949, based on data from the Federal Reserve.
The Sahm Rule states that when the three-month average U.S. unemployment rate increases by 0.5% from the 12-month low, the U.S. is already in a recession.
Key Takeaways
- In July, the Sahm Rule flashed red as U.S. unemployment increased to 4.3%, up more than 0.5% from its 12-month low
- The Sahm Rule has indicated virtually every recession since 1949
- One important distinction with today is that an influx of unemployed entrants into the labor pool drove half of this increase in the Sahm Rule
- By contrast, layoffs were a primary driver behind rising unemployment in past recessions
