Daily Market Recap - August 20, 2024

Stock Market Takes a Breather After Strong Run

After a streak of gains, the stock market finally took a breather on Tuesday. The S&P 500 ended the day down 0.2% at 5,600, the Nasdaq slipped 0.3% to 14,122, and the Dow Jones declined by 0.2% to close at 34,215.

The recent rally, which saw the S&P 500 and Nasdaq both climb for 8 consecutive days is officially over.

Fed Rate Speculation

Every single news outlet is now pumping out articles that are nothing but speculation over the Federal Reserve’s next steps. Despite the uncertainty you hear in the media about whether the Fed will begin cutting interest rates in September, are total BS.

The Federal Reserve is 100% going to cut rates in September. The only question is if the cut will 25 or 50 basis points. Everything else is empty noise and not relevant.

Jackson Hole Incoming

The market’s volatility (VIX) spiked by 8.3% on Tuesday, reflecting investor nervousness ahead of the Federal Reserve’s annual Jackson Hole Symposium this Friday. Powell is going to speak and what he says (and how he says it) is going to be critical for the market short term. Last year he came out as a dove, and we rallied 4%, the year before he was a hawk, and we dropped 8% on the day. Expect volatility.

Retail Earnings

Lowe’s reported a mixed Q2 earnings and lowered its full-year guidance, citing soft demand in the do-it-yourself (DIY) market. This started a whole new discussion about broader consumer caution, and lowered spending on discretionary items, which many see as a recessionary development. I think it's a standard overreaction. Look at Walmart, U.S. sales at stores open for at least one year increased 4.2% last quarter and its operating income surged 8.5% during the quarter. Walmart’s US digital sales are booming: They grew 22%. The company also raised its sales and profit guidance for the year, a sign it expects its strong growth to continue. Hence, there is data supporting both arguments, and nothing conclusive in either direction yet.

Bond Yields Decline

The bond market also saw notable action, with the yield on the 10-year U.S. Treasury note falling by 6 basis points to 3.82%, while the 2-year yield dropped to 4.01%. The decline in yields reflects an increase in demand for safer assets. Lower yields generally indicate that investors are becoming more risk-averse, which could signal a more cautious outlook for the economy. Pay attention to the bond market, most investors completely ignore it, and it's a mistake.

What’s Next: Eyes on Jackson Hole

As we look ahead, all eyes will be on Jerome Powell’s speech on Friday. What and how he says it, will be a major catalyst in either direction the market takes us.