Weekly Recap & Market Forecast $SPX (Aug 4th—> Aug 9th)

5 août

Hello Investors! 🌟 This week saw volatility surge to levels not seen in over a year, with UST yields sliding to their lowest in months. Renewed concerns about wider conflict in the Middle East, coupled with fears of a rapidly decelerating US economy potentially leading to a recession, resulted in a forced recalibration in the markets. Let's delve into the key events that shaped this volatile week. 📈

**Market Overview:**

Volatility spiked dramatically as geopolitical tensions and economic concerns dominated headlines. Renewed fears about a broader conflict in the Middle East and the possibility of a more severe recession in the US led to significant market movements. The FOMC held rates steady, disappointing those hoping for a rate cut. Chairman Powell's focus on employment risks suggested that the committee is nearing a time to reduce restrictiveness, but his message didn't align with the rapidly declining labor indicators. The week ended with a weak July employment report, following a disappointing ISM manufacturing report that spooked markets on Thursday, resulting in risk-off flows and a more dovish outlook towards the Jackson Hole Symposium.

**Stock Market Performance:**

- 📉 S&P 500: Down by 2%
- 📉 Dow Jones: Down by 2.1%
- 📉 NASDAQ: Down by 3.4%

**Economic Indicators:**

US Treasury yields dropped amid a slew of softer economic readings, with the yield curve steepening significantly:

- **2-10 Year Spread:** Rose above -10 bps as futures markets and investment houses now foresee a 50 basis point Fed rate cut in September and potentially more than 100 bps in cuts by the end of 2024.
- **JOLTS Job Openings:** Showed the ratio of job openings to unemployed workers has fallen back to pre-pandemic levels.
- **ADP Employment Data:** Missed estimates, with annual pay growth slowing to its lowest level in years.
- **Weekly Initial Jobless Claims:** Hit a 1-year high at 249K.
- **ISM Manufacturing:** Missed estimates across the board, with the employment component registering its weakest reading since June 2020.
- **July Employment Report:** Payrolls, hours worked, and wages all missed estimates, with unemployment rising to 4.3%, triggering the Sahm recession indicator for the first time since the pandemic.

**Commodity Prices:**

- **Crude Prices:** Rose early in the week due to escalating tensions between Israel and Iran but sold off later on rising recession fears.
- **Gold Prices:** Climbed ~10% through Thursday due to a weaker US dollar but fell sharply after the Friday employment report.
- **Bitcoin:** Also sold off sharply after the employment report.

**Corporate News:**

- **AI and Consumer Spending:** The themes of AI investment and weakening consumer spending dominated earnings reports.
- **Nvidia:** Criticized by Elliott Management, suggesting AI is overhyped and in a bubble.
- **Arm Holdings and Intel:** Reinforced concerns with Arm guiding lower and Intel announcing a fresh turnaround plan after poor results.
- **Apple and Meta:** Reported better quarterly results, affirming significant capex growth for AI in the coming year.
- **Consumer Sector:**
- **McDonald’s:** Missed earnings and reported negative same-store sales, highlighting competition for value meals and deal-seeking consumers.
- **Amazon:** Echoed similar sentiments about deal-seeking consumers, with capex increases tied to AI spending.
- **Procter & Gamble:** Reported mixed results, noting market challenges expected to persist until the second half of next year, particularly in China.