Last week, markets closed on a strong note on Friday, recovering from some mid-week weakness that followed the best week of the year so far. The catalyst for Friday’s rally was Fed Chair Jerome Powell’s speech at Jackson Hole, where he confirmed the market's expectation that rate cuts are on the horizon. Global equity markets gained about 2% last week, led by international equities and small-cap stocks in the U.S. International equities were boosted as the U.S. dollar weakened following Powell’s speech. For the quarter, the NASDAQ 100, a proxy for large-cap growth and tech stocks, is now back in positive territory despite the correction we saw a few weeks ago. Bonds have also performed well, with gains of over 4% for the quarter. The yield on the 10-year Treasury note fell from 3.9% to 3.8% last week.

Let’s delve a bit deeper into Jerome Powell’s comments from last week, highlighting three key points. First, his statement that "the time has come to finally adjust" aligns with the market’s view, especially in light of last week’s labor data revisions showing over 800,000 fewer jobs created than initially reported. Second, Powell noted that the "timing and pace will depend on incoming data," indicating that the schedule and scale of rate cuts will hinge on future data, such as the upcoming inflation figures this week and employment numbers next week. Third, Powell expressed growing confidence that "inflation is on path to 2%," which bodes well for both stock and bond market sentiment.

Looking ahead, this week is another pivotal one for inflation data, with the release of the Fed’s preferred inflation measure, core PCE. The expectation is for a 2.7% year-over-year increase. Additionally, we will see the second revision of Q2 GDP, which is anticipated to be 2.8%. Nvidia’s earnings report on Wednesday could also significantly impact the stock market. Expectations are extremely bullish, with some believing Nvidia could exceed these high forecasts. This could serve as a bellwether for the AI sector, the "Magnificent 7," and potentially the broader market.

As for the overall earnings season, as of August 23, the S&P 500 reported an 11.5% year-over-year earnings growth rate for Q2 2024. This rate has been revised upward throughout the earnings season, starting from an initial estimate of 8.9% at the end of June. The 11.5% growth rate marks the highest year-over-year earnings growth for the index since Q4 2021. Looking forward, however, analysts are predicting a year-over-year earnings growth rate of 6% for Q3 2024, which, while positive, indicates a slowdown. This could be a temporary blip, though, as earnings are projected to grow by 16% year-over-year in Q4 2024.

One final note on interest rates: if the Fed does begin to cut short-term rates soon, it doesn’t necessarily mean that all interest rates will drop equally across all maturities. While the factors driving short-term rates lower could influence longer-term rates, the changes won’t be identical. Short-term rates are managed by the Fed in response to historical data, whereas longer-term rates are driven by market expectations about future economic strength and inflation trends.

In summary:

Remain invested. Stay diversified. Stay disciplined.

 

If you have any questions or comments, please let us know at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust. See you next week!


 

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Key Data

Stocks, Bonds, Alternatives, and Real Assets as of August 23, 2024

Security Name

Risk Score

1 Wk

1 Mo

QTD

YTD

1 Yr

3 Yr Ann.

Global Equities (60% US, 40% Intl)

100

1.82%

2.02%

4.11%

15.17%

24.86%

6.42%

S&P 500 Total Return

102

1.47%

1.55%

3.39%

19.20%

28.91%

9.64%

Dow Jones Industrial Average

97

1.29%

2.17%

5.51%

10.56%

21.83%

7.38%

NASDAQ 100 Total Return

122

1.09%

-0.08%

0.30%

17.83%

31.27%

9.70%

TV Benchmark

107

1.29%

1.21%

3.07%

15.86%

27.34%

8.91%

Morningstar US Large Cap

102

1.29%

1.24%

2.76%

21.08%

31.35%

9.88%

Morningstar US Mid Cap

113

2.32%

2.68%

5.86%

11.41%

21.41%

4.54%

Morningstar US Small Cap

125

3.15%

0.70%

6.58%

8.55%

19.19%

3.30%

Morningstar US Value

98

1.85%

3.38%

6.82%

14.09%

22.49%

9.91%

Morningstar US Growth

126

2.30%

0.49%

2.61%

13.85%

25.26%

0.97%

MSCI ACWI Ex USA 

98

2.15%

2.87%

4.82%

11.16%

19.97%

3.24%

MSCI EAFE 

101

2.76%

3.26%

5.66%

11.74%

21.02%

4.75%

MSCI EM

98

0.71%

1.54%

2.07%

9.91%

16.80%

-0.80%

Bloomberg US Agg Bond Index

27

0.67%

3.13%

4.34%

3.60%

8.61%

-1.97%

Bloomberg Commodity Index

70

0.88%

-0.62%

-3.71%

1.24%

-2.73%

4.85%

Wilshire Liquid Alternative Index

25

0.60%

0.99%

1.63%

5.36%

9.01%

1.90%

US Dollar

10

-1.43%

-2.69%

-4.12%

0.17%

-1.98%

2.78%

Bloomberg US Treasury Bill 1-3mo

1

0.10%

0.49%

0.82%

3.53%

5.54%

3.39%

Source: Morningstar

The TV Benchmark represents an average of the S&P 500, Dow Jones IA, and NASDAQ 100 return indexes. The Orion Risk Score represents risk relative to the global equity market.

 

 

Interest Rates as of August 23, 2024

Rate

This Week

1 Wk Δ%

13-Wk Treasury Yield

5.00%

-0.07%

10-Yr Treasury Yield

3.81%

-0.08%

Bloomberg US Agg Yield

4.47%

-0.11%

Avg Money Mkt Yield

5.10%

-0.01%

Avg 30-Yr Mortgage Rate

6.57%

-0.02%

Sources: Yahoo Finance, S&P Global, Crane Data, BankRate

 

 

Key Economic Data Last Week

Data Point

Expectation

Actual

Initial Jobless Claims

230,000

232,000

Existing Home Sales

3.95M

3.95M

Jay Powell Jackson Hole Speech

--

--

Source: MarketWatch, First Trust

 
 

Key Economic Data This Week

Data Point

Expectation

Release Date

Durable Goods Orders

4.0%

8/26/24

GDP (2nd Revision)

2.8%

8/29/24

Personal Spending

0.5%

8/30/24

PCE YoY

2.5%

8/30/24

Core PCE YoY

2.7%

8/30/24

Sources MarketWatch

 

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The views expressed herein are exclusively those of Orion Portfolio Solutions, LLC d/b/a Brinker Capital Investments a registered investment advisor, and are not meant as investment advice and are subject to change.
An index is an unmanaged group of assets considered to be representative of a select segment or segments of the market in general, as determined by the index manager for the purposes of managing a specific index. You cannot invest directly in an index.
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