Summer Spring
September 5, 2024
While the month may have started off in a stumble, August made a quick recovery. Markets tumbled on the first of the month, and then saw one of the worst single day drops in history on the very next day. However, both equity and bond markets quickly recovered, and August performance was able to mirror that of previous months. Equity markets returned 3.84% and 3.11% for the month as tracked by the S&P 500 and NASDAQ, respectively. International markets also performed well, returning 1.34% and 4.23% for the month tracked by the MSCI Emerging Markets Index and the MSCI World Index, respectively. Bond markets brought in the back of the pack returning 1.02% as tracked by the Bloomberg U.S. Aggregate Bond Index.
The sharp drop at the start of the month appeared to be largely in response to a weak jobs report by the Bureau of Labor Statistics. A jobs report released in April of this year initially reflected the creation of over 2.7mm jobs from March 2023 to March 2024. Come mid-August, this report was revised downward by over 800,000 jobs. This adjusted report also included a downward revision to total payroll levels of .50%, which is the largest revision in total payroll since 2009. This conflicting data left consumers with flighty sentiment toward the strength of the economy Gold prices have historically been used as an indicator of economic health. Specifically, rising prices can indicate deterioration of the economy and prices have increased by 2.40% in August as tracked by the London Bullion Market Association (LBMA) Gold Price . However, despite these drastic revisions, financial markets still delivered strong returns for the month, as shown above. The adverse economic signals were addressed by the U.S. Fed Chair, Jerome Powell, at the Jackson Hole symposium where he impressed on both the inflation and employment concerns.
The Jackson Hole Symposium is an annual central banking conference hosted by the Federal Reserve Bank of Kansas City. It is an international conference with central bank leaders and financial ministers from around the world in attendance. At this year’s gathering, market participants directed their attention to Powell’s expression of economic security, hoping for an indication of future policy decisions. While every fiber of our central banking system appears to be prepared to cut rates come mid-September, Powell made it clear that all upcoming decisions by the Fed will be guided by data. Further, he noted that the risks and incentives associated with each decision will be appropriately considered. At Jackson Hole, he discussed the inflation risks that the economy has faced in recent years -as well as the increasing employment risks as a result of high interest rates, but in closing of his review of current economic conditions he stated, “the time has come for policy to adjust”.1 The timing and magnitude of those adjustments is still unclear, but Bloomberg's World Interest Rate Probability (WIRP) Model is estimating nearly four rate cuts by the end of the year, as of August 30th. So reasonably, with only three scheduled Fed meetings remaining in the year, the model is estimating a cut at the September meeting.
With students back in school, policy makers primed to make new changes, and campaign season in full swing August came in hot. The weak jobs report at the start of the month had many market participants concerned that rates were not cut soon enough. Fortunately, concerns were moderately alleviated during Powell’s speech in Wyoming. Either way, it will be hard to tell what the right call was or is until well after changes have been made. Borrowing and lending rates and the decisions surrounding those are at the height of popularity amongst media and political debates. September will be sure to bring more insight into these decisions, but for now, policy rates remain a delicate balance hanging in the hands of our elected officials.
Hazel Allen
Portfolio Management Analyst
1https://www.federalreserve.gov/newsevents/speech/powell20240823a.htm
Published Aust 23, 20024; Accessed August 29, 2024
The S&P500 Index is the Standard & Poor's Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and itis highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
The Bloomberg U.S. Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented.
The Bureau of Labor Statistics is the Department of Labor’s principal fact-finding agency for the federal government in the field of labor, economics, and statistics. It provides data on employment, wages, inflation, productivity, and many other topics.
The LBMA Gold Price and LBMA Silver Price are the global benchmark prices for unallocated gold and silver delivered in London.
The MSCI Emerging Markets Index consists of 23 economies including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. The MSCI is afloat-adjusted market capitalization index.
The MSCI World Index is an unmanaged free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
Bloomberg's World Interest Rate Probability (WIRP) model calculates the implicit forecast for interest rates over the next year for the world's largest developed central banks. It does this after each meeting, and is an indicator of investor assumptions, which can have real-world consequences.
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