Presented by Mark Gallagher
Equities recovered after a two-day sell-off amid a Japanese carry trade scare. Bonds gave back much of their gains, as investors returned to risk assets later in the week.
Quick Hits
- Report releases: Service sector confidence improved more than expected in July.
- Financial market data: Equities recouped losses amid a Japanese carry trade scare.
- Looking ahead: This week will be busy on the data front, with inflation, retail sales, and consumer sentiment all expected.
Report Releases—August 5–9, 2024
S&P Global U.S. Composite Purchasing Managers’ Index (PMI): July (Monday)
The U.S. Composite PMI fell to 54.3, down from 55.0. The services sector led the move as its PMI fell from 56.0 to 55.0. Manufacturing fared better, increasing to 49.6 from 49.5, but still in
contractionary territory.
-Prior U.S. Composite PMI: 55.0
-Actual U.S. Composite PMI: 54.3
Institute for Supply Management (ISM) Services: July (Monday)
Confidence in the services sector rebounded sharply in July after briefly falling into contractionary territory in June.
-Expected/prior ISM services index: 51.0%/48.8%
-Actual ISM services index: 51.4%
Trade Balance: June (Tuesday)
The trade deficit fell less than expected in June. Despite the miss against expectations, this represents the smallest monthly deficit in three months.
-Expected/prior trade deficit: –$72.5 billion/–$75.0 billion
-Actual trade deficit: –$73.1 billion
Richmond Federal Reserve (Fed) President Tom Barkin (Thursday)
Despite the volatility in rates recently, Richmond Fed President Tom Barkin said the central bank has time to assess whether the economy is normalizing or if it’s softening. He noted risks to both sides of the Fed’s mandate but was optimistic on broadening disinflation.
The Takeaway
-Services showed conflicting data in July, with ISM showing strength and PMI showing weakness.
-The Fed remains optimistic about continued broadening disinflation.
Financial Market Data
Equity
| Index | Week-to-Date | Month-to-Date | Year-to-Date | 12-Month |
| S&P 500 | –0.02% | –2.02% | 12.96% | 21.42% |
| Nasdaq Composite | –0.17% | –5.54% | 12.00% | 23.12% |
| DJIA | –0.56% | 1.11% | 5.95% | 14.77% |
| MSCI EAFE | –0.29% | –1.23% | 4.05% | 9.87% |
| MSCI Emerging Markets | 0.27% | –1.60% | 5.77% | 8.15% |
| Russell 2000 | –1.32% | 1.71% | 3.48% | 9.41% |
Source: Bloomberg, as of August 9, 2024
U.S. equities were down on the week, although recovered from a major sell-off on Monday. International markets fared a bit better. Monday’s sell-off is thought to be due to an unwinding in the Japanese yen carry trade that has been in place for an extended period. Those participating in the trade had historically borrowed at a very low cost due to Japan’s low interest rate policy and invested elsewhere. This went awry recently, as Japan recently hiked rates and central banks such as the U.S. Fed left their rates unchanged. This led to a strengthening Japanese yen, which offset any gains from borrowing at low rates.
Fixed Income
| Index | Month-to-Date | Year-to-Date | 12-Month |
| U.S. Broad Market | 0.74% | 2.36% | 6.31% |
| U.S. Treasury | 0.85% | 2.17% | 5.31% |
| U.S. Mortgages | 0.87% | 2.52% | 6.16% |
| Municipal Bond | 0.51% | 1.01% | 5.17% |
Source: Bloomberg, as of August 9, 2024
The yield curve reversed much of its move from last Friday and Monday as the belly of the curve plunged, as investors looked to lock in elevated short- to intermediate-term rates amid concerns in risk assets. The U.S. 5-year treasury finished up by 18 basis points (bps) to close the week at 3.8 percent.
The Takeaway
-Equities recovered from the sharp sell-off at the start of the week, as Japanese carry trade
fears eased.
-Bonds gave back much of their gains from Friday and Monday, as investors returned to risk assets and yields rose.
Looking Ahead
This week will be busy on the economic front. The focus will be on inflation, retail sales, and
consumer sentiment.
-The week kicks off on Tuesday with the release of the Producer Price Index for July. Producer prices are set to rise 0.2 percent in July, which would be in line with June’s increase.
-On Wednesday, we expect to see the release of the Consumer Price Index for July. Year-over-year consumer inflation is expected to remain flat at 3.0 percent following a larger-than-expected slowdown in June.
-July retail sales will highlight Thursday’s data. Retail sales are set to rise by 0.3 percent in July after coming in flat in June. Core sales are set to show a more modest 0.2 percent increase.
-Finally, on Friday the Preliminary University of Michigan Consumer Sentiment Survey for August will be released. The first look at consumer sentiment in August is expected to show modest improvements during the month.
Disclosures: This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.
Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.
Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com
Authored by the Investment Research team at Commonwealth Financial Network.
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