Key points:
- U.S. stocks had their best week of the year as recession fears eased
- Retail sales rose 1% in July, exceeding expectations
- Initial jobless claims fell more than expected last week
- The Federal Reserve is expected to discuss rate cuts at the upcoming Jackson Hole symposium
- Investors are now anticipating a potential 25 basis point rate cut from the Fed
U.S. financial markets experienced a significant upswing this week, with major stock indexes posting their largest weekly gains of the year. The positive momentum came as new economic data alleviated fears of an impending recession and shifted investor focus towards the Federal Reserve’s upcoming Jackson Hole Economic Symposium.
The S&P 500 and Nasdaq both recorded their seventh consecutive day of gains, recovering losses from a sharp decline two weeks prior. All three major indexes – the S&P 500, Nasdaq, and Dow Jones Industrial Average – achieved their most substantial weekly percentage increases since late October.
A key factor driving this market rally was the release of encouraging economic indicators. The U.S. Census Bureau reported that retail sales rose by 1% in July, surpassing Wall Street’s expectations of a 0.4% increase. This data suggests that consumer spending, a crucial component of the U.S. economy, remains robust.
Breaking down the retail sales figures, motor vehicle and parts dealers led the gains with a 3.6% increase, while electronic and appliance store sales grew by 1.6%. The control group, which excludes several volatile categories and is factored into GDP calculations, saw a 0.3% rise, also exceeding analyst predictions.
In addition to strong retail performance, the labor market showed resilience. The Department of Labor reported that initial filings for unemployment insurance decreased more than anticipated in the week ending August 10. New jobless claims totaled 227,000, down from 234,000 the previous week and below the 235,000 economists had forecasted.
These positive economic indicators have prompted a shift in market expectations regarding the Federal Reserve’s monetary policy. Investors are now pricing in a roughly 75% likelihood of a 25 basis point interest rate cut by the Fed, a notable change from the previous week when a 50 basis point reduction was favored.
The upcoming Jackson Hole Economic Symposium, scheduled for next week, has captured the attention of market participants. Federal Reserve Chair Jerome Powell’s keynote speech on Friday is anticipated to provide insights into the central bank’s stance on potential rate cuts.
Chicago Fed chief Austan Goolsbee commented in a National Public Radio interview that central bank officials should be cautious about maintaining restrictive policy longer than necessary. This statement has further fueled speculation about the Fed’s future actions.
Despite the overall positive sentiment, some sectors and companies faced challenges. The industrial sector experienced the largest drop among the S&P 500’s major sectors. Applied Materials, a chip-making equipment firm, saw its stock price decline by 1.9% despite forecasting stronger-than-expected fourth-quarter revenue.
As of the market close on Friday, August 16, 2024, the Dow Jones Industrial Average rose 96.7 points (0.24%) to 40,659.76. The S&P 500 gained 11.03 points (0.20%) to reach 5,554.25, while the Nasdaq Composite added 37.22 points (0.21%) to close at 17,631.72.
The recent economic data and market performance have led some analysts to express optimism about the U.S. economy’s trajectory. Yung-Yu Ma, chief investment officer at BMO Wealth Management US, stated,
“We think the soft landing is firmly in place.”
