The August swoon in stock prices continued last week. The S&P 500 index, for example, lost over 2% again, extending its losing streak to a third consecutive week. A leading reason for recent losses is that interest rates continue to rise, with two leading examples being the 10-Year US Treasury at its highest levels in over 15 years and mortgage rates moving to their highest level in over two decades. Why are bond yields moving higher? One contributing factor is that China, whose economy continues to disappoint, is selling US Treasuries. Another factor is that many are now expecting inflation to move higher later again this year. Yet another reason is that the U.S. economy is increasingly stronger than most have expected — even among the econo-bulls!
Here’s a number that might surprise most people — the Atlanta Fed’s GDPNow is now estimating Q3 2023 real (i.e. after inflation) GDP at 5.8%. Wow. Before getting too excited about the economy though, do note that the Conference Board’s US Leading Indicators “fell for the sixteenth consecutive month in July, signaling the outlook remains highly uncertain.” This outlook does make sense. Just consider the rising interest rates. They do impact the economy, but with a lag. The higher rates are still working their way through the system.
As for potential market-moving events this coming week, beyond watching the interest rate markets, there are quarterly earnings from key AI stock Nvidia on Wednesday. Also, on Friday morning Federal Reserve Chair Jerome Powell is speaking in Jackson Hole, Wyoming.
Add it all up...
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