- Technology stocks continued to suffer as earnings this past week from Amazon, Qualcomm, Microsoft and Intel did not live up to expectations and perhaps pushed off the timeline when these as well as other companies might to able to begin monetizing Artificial Intelligence (AI). We have been noting for several weeks that although “we would not recommend abandoning the leaders but other than incrementally would hold off adding to them at this point.” With the NASDAQ Composite closing in correction territory this past week (-10.04% from its record high set July 10), we are approaching price points at which some are attractive. That said, the recent earnings period has also revealed some flaws in others perhaps necessitating rotation within that sector. Finally, investors must take note of the fact that August is historically a weak month for the financial markets. So – be patient.
- The recent rotation turned into a “rout-ation” this past week as the Russell 2000, which had been approaching a record high suffered more than the other indexes, falling 6.67% as compared to a drop of 2.06% for the S&P 500. The theory had been that as the Fed lowers rates the cost of borrowing would decline, helping smaller cap companies more than their larger cap brethren. However,should the economy slow too quickly, any benefit from this would be more than offset by weakening demand.
- The Open Market Committee of the Federal Reserve (FOMC) concluded its regularly scheduled two-day meeting this past Wednesday and decided to stand pat on the Fed Funds Rate, keeping it at a range of 5.25%-5.50%. The policy statement as well as the ensuing press conference with Fed Chair Jerome Powell yielded some insight into future Fed monetary policy, to include:
- As to whether a rate cut was on the table at the upcoming September meeting of the FOMC should the economic data continue on its current path, Powell stated that “the question will be whether the totality of the data, the evolving outlook and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market. If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.” We would add that a reduction in interest rateswould help the housing market substantially.
- When questioned about the Fed’s attention to its dual mandate (maximum employment and stable prices) Chair Powell stated that “as the labor market has cooled and inflation has declined, the risks to achieving our employment and inflation goals continue to move into better balance.”
- On Friday, the Department of Labor reported that Non-Farm Payrolls during the month of July rose by 114,000far below the consensus estimate of 181,000 and sparking worries that the economy was slowing too quickly. In addition, the prior two months were revised to show a net loss of 29,000 jobs. July’s number also pushed the three-month trailing average down to 169,677 far below the average of 215,000 over the trailing twelve months. Payrolls were helped by education and health care as well as leisure and hospitality but held back by technology. The unemployment rate ticked up to 4.3% during July from 4.1% one month prior and is well off its trough low of 3.4% set in April 2023. Digging a little deeper into the report, Average Hourly Earnings rose by 0.23% to $35.07 which brought the y/y increase to 3.63%.However, adjusting for a slight decrease in the length of the average workweek, average weekly earnings dipped slightly.
- The Non-Farm Payroll report supported data from the increase in the Initial Claims for Unemployment Benefits, released by the Department of Labor every Thursday, which showed claims rising 14,000 to 249,000. Continuing claims rose to their highest level since November 2021.
- According to the Federal Home Loan Mortgage Corporation (FreddieMac), “mortgage rates declined to their lowest level since February. Expectations of a Fed rate cut coupled with signs of cooling inflation bode well for the market, but apprehension in consumer confidence may prevent an immediate uptick as affordability challenges remain top of mind. Despite this, a recent moderation in home price growth and increases in housing inventory are a welcoming sign for potential homebuyers.”
- Upcoming Economic Reports scheduled to be released this week include the following, on Monday, the Institute for Supply Management’s Services Report on Business and the June Trade Balance; on Wednesday, June Consumer Credit; and, on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and June Wholesale Inventories.
- The Q2 Earnings Season continues to roll along. Companies of note scheduled to report this week, include – Berkshire Hathaway (BRKB), Amgen (AMGN), Uber (UBER), Caterpillar (CAT), Duke Energy (DUK), Airbnb (ABNB), Zoetis (ZTS), Disney (DIS), Novo Nordisk (NVO), Eli Lilly (LLY), and Gilead Sciences (GILD).
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Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
