Daily Market Report August 13th, 2024

In a session that showed fairly limited final results in the major indices, the market seemed a little quiet after the tremendous volatility from last week.

The Dow, after a higher start, ended lower by 140 down to 39,357 with pressure coming from selling in BA which is going nowhere, GS after its run to all-time highs, HD ahead of its earnings this morning (which were negative) and PG, which has been sort of steady for months now.

The S&P gyrated in a narrow range on either side of unchanged before ending at the same level from which it closed at on Friday, which was 5344 as gains in AAPL, NVDA which finally woke up after its falling into a 28% correction from last month’s highs and AMD helped provide support against weakness in some financials and energy issues.‍

The Nasdaq did the best with a small 35 point gain up to 16,780 as advances in the three aforementioned stocks helped here along with other advances from some parts of the technology world.

The Russell 2000 Index of small stocks fell back 19 points to 2062 on weakness in smaller regional banks and the VIX, which made that dramatic collapse from 66 down to almost 20, rose a bit to 20.71 as it gets back to a normal level historically. I had sent out a special comment piece last night about how the VIX calculation was so off-base at 66 that some sort of recovery from last Monday’s lows was almost inevitable as the indices ended only slightly lower after that horrendous start.‍

Many European and Asian stock markets were also relatively quiet. That was a notable turn after last week kicked off with the worst day for Japanese stocks since the Black Monday crash of 1987, which was followed on Thursday by the best day since 2022 for stocks.

The value of the Japanese yen eased on Monday, calming some more after an earlier surge sent shockwaves through markets. The sharp rise for the Japanese yen following a hike to interest rates by the Bank of Japan forced many hedge funds and other investors to abandon the popular yen carry trade, where they had borrowed yen at cheap rates to invest elsewhere. The forced selling reverberated around the world.‍

A promise last week by a top Bank of Japan official not to raise rates further as long as markets are “unstable” has helped calm the market. But other worries were also behind last week’s turbulence for markets, including concerns about a slowing U.S. economy.

A string of worse-than-expected economic data recently has raised worries the Fed may be leaning too far to one side on the tightrope after keeping its main interest rate at a two-decade high. The lowlight came earlier this month when a report showed hiring by U.S. employers weakened by far more than expected.

The Fed does not have an easy way to fix a weakening economy where inflation is worsening, a phenomenon called “stagflation.” The central bank could ease rates, which would give the U.S. economy an upward push but also threaten to worsen inflation. Or it could continue to keep its rate high. That would put downward pressure on inflation but also inflict more pain on the economy.

Of course, the U.S. economy is still growing, and many economists see a recession as unlikely. But worries about it have nonetheless put downward pressure on Treasury yields in the bond market.

They fell again Monday ahead of the upcoming data reports. The yield on the 10-year Treasury slipped to 3.90% from 3.94% late Friday. The two-year Treasury yield, which more closely tracks expectations for Fed action, fell to 4.01% from 4.06%.

KEY jumped 9% after the regional bank announced a $2.8 billion investment from the Bank of Nova Scotia. The Cleveland bank said the cash influx will allow it to drive further growth in its investment banking and wealth management businesses.

On the losing end was HAWEL, which reported weaker results for the spring than analysts expected. The company also said it is not sure it will be able to last at least another year as a “going concern” unless it can find financing to help pay the estimated $1.71 billion in liabilities it has suffered related to the Maui windstorm and wildfire.

Earnings for the second quarter come to an end this week with the following: yesterday – MNDY higher and HAWEL lower; today – Dow component HD lower; Wednesday – CAH, CSCO; Thursday – Dow component WMT plus BABA, TPR, AMAT and DE.

Economic reports will have: today – July P.P.I. came in lower than expected at a gain of 0.1% while ex-food and energy was unchanged. Year over year the gain was 2.2% while ex-food and energy was 2.9% and this is giving the stock indices a push higher; Wednesday – July C.P.I.; Thursday – weekly jobless claims, July retail sales, July industrial production and capacity utilization; Friday – July housing starts and mid-month July U. of Michigan Consumer Sentiment Survey.

By Don Selkin