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A Volatile Week For Equities Ends Little Changed
Equity markets were volatile last week but ended little changed as Monday’s continued selloff was nearly canceled out by strong performance Thursday and Friday. Global equities (represented by the MSCI All Country World Index) were up 0.02% while domestic stocks (represented by the S&P 500 Index) were down -0.02%.
The S&P
The S&P 500 fell 3% on Monday. While markets were still reacting to the weaker-than-expected July jobs report, the decline was also fueled by a technical factor in the unwinding of the Yen carry trade. The Yen carry trade is a strategy of borrowing the Japanese Yen cheaply and subsequently investing in higher-yielding assets. As US Treasury rates have risen over the past few years and investors have been able to borrow at near-zero interest rates in Japan, the Yen carry trade had picked up more traction. However, with the Bank of Japan’s decision to raise rates and the expected Fed rate cuts on the horizon, the trade has become less appealing and caused forced selling to cover the trade as the Yen has appreciated in value and the US-Japan rate spread has narrowed.
Reverse Course
Markets reversed course and jumped higher Thursday as the S&P 500 rose 2.3%, the largest one-day gain since 2022. A drop in weekly unemployment claims sparked the bounce as it eased the fears of investors around the slowing labor market. Initial claims fell to 233,000 from 250,000 the week prior.
Source: Department of Labor
GDP
In addition to weekly jobless claims, the Atlanta Fed GDPNow estimate of real GDP for the third quarter provided another stimulus to equities as their model projected a 2.9% growth rate. The Institute for Supply Management’s (ISM) reading of their services index also bounced back into expansionary territory in July following its lowest reading in three years for June.
CPI
This week the economic calendar consists of readings of the Consumer Price Index (CPI) and retail sales for July, providing insight on inflation and consumer spending. Headline CPI fell to an annual rate of 3.0% in June, and retail sales were nearly flat for the month but grew 2.3% year-over-year from June 2023.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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