In focus
Equities enjoyed their first positive week of August as the S&P 500 snapped its three-week losing streak. While the gains were driven by some notable outperformers, the S&P 500 Equal Weight Index was flat, painting a more mixed picture of the broad market. Bond yields spiked on the short end of the curve, while the 10-year yield soared to its highest level since 2007 before receding to end the week. This runup in yields has restored value in fixed income and we remain tactically neutral between stocks, bonds, and cash.
Investors fixated on Federal Reserve (Fed) Chair Powell’s speech at Jackson Hole on Friday. Chair Powell reiterated the central bank’s 2% inflation target but was balanced in his remarks, which lacked any near-term policy signal; as a result, there was no major market impact. Meanwhile, earnings season wrapped up as most of the final reports came from major retailers, which provided a varied outlook on U.S. consumers. However, new home sales hit a 17-month high in July despite historically- high mortgage rates.
The bears outnumbered the bulls in last week’s AAII Investor Sentiment Survey for the first time since May as bearish sentiment has edged up for four- straight weeks. Key economic data, including the August jobs report, is likely to be important for sentiment this week.
A look back
- U.S. and emerging market equities posted modest gains, while international developed markets stocks trailed.
- Interest rates were mixed as the 10-year U.S. Treasury yield reached its highest point in over 15 years before falling back to close the week around 4.23%. The 2-/10- year inversion deepened.
- The University of Michigan survey showed consumer sentiment declined in August, while one and five-year inflation expectations rose.
A look ahead
- The August jobs report set to be released on Friday is the economic highlight. Though the labor market has weakened, it’s remained resilient in the face of higher interest rates.
- July’s Personal Consumption Expenditures (PCE), the Fed’s preferred inflation gauge, will provide a key update in the central bank’s campaign to pull inflation back towards 2%.
- Economic releases: PCE, Nonfarm Payrolls, Unemployment Rate, S&P Global U.S. & ISM Manufacturing.
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