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For investors who anticipated a smooth 2024, last week painted a different picture of the market. The week started with a sharp drop in the Dow Jones on Monday, sparking a wave of negative headlines predicting further losses. The following days were marked by wild swings, including some sharp gains. However, by the week’s end, the market had shown little change compared to the previous week’s performance, indicating that the situation was not as dire as initially feared.
While we acknowledge the recent market volatility, the panic that has gripped the markets seems somewhat exaggerated. Although last week’s plunge in the value of risk assets shook the markets, 2024 has not seen dramatic price movements, particularly in the equity markets, which have frequently reached record highs with minimal volatility. We believe there are steps that can be taken to mitigate losses during downturns.
Recession fears have weighed on investor sentiment since the release of U.S. employment data last week, which revealed a higher-than-expected rise in the unemployment rate. While a weaker labor market might be seen as a reason for optimism, as it could prompt the Federal Reserve to cut interest rates and return them to normal levels, the growing number of unemployed in the United States has heightened concerns about the potential for a recession.
U.S. employment data sent mixed signals to the markets, triggering volatile movements in the prices of globally traded assets, particularly the U.S. dollar, oil, and gold.
The non-farm employment change index in the United States showed an addition of 114,000 jobs in July, down from the previous reading of 179,000 jobs and significantly below the expected 175,000 jobs.
Wage growth also declined last month, as indicated by the annual average hourly earnings index, which recorded a 3.6% increase in July, compared to 3.8% previously. This was slightly below market expectations of 3.7%.
The average hourly earnings index rose by 0.2% monthly, down from the previous month’s increase of 0.3%.
These indicators suggest that the current labor market deterioration could support the Federal Reserve’s position if it chooses to cut interest rates at the September meeting—a move that could inject positivity and optimism into the markets.
However, the unexpected rise in the U.S. unemployment rate has cast a shadow over this outlook, causing extreme negativity in the markets due to growing investor fears that the U.S. economy may be edging closer to a recession.
The unemployment rate increased to 4.3%, up from 4.1% in the previous reading, exceeding expectations, which had forecast the same 4.1%.
Next Week
Markets are anticipating a new round of inflation data next week, with expectations pointing to further price declines in the United States. Three key indicators will be released that will provide insight into consumer conditions in the country.
These indicators include U.S. producer prices, U.S. consumer prices, and the U.S. wholesale price inflation index. Market expectations suggest that the Consumer Price Index (CPI), the most crucial of the three, will continue its downward trend, potentially reaching 3.00%.
Additionally, several significant economic reports are expected to offer further clarity on the future direction of Federal Reserve interest rates. These reports include weekly unemployment claims, retail sales, business inventories, and U.S. housing indicators.
Next week, some major companies listed on the New York Stock Exchange will also release their second-quarter earnings reports for 2024. Among these, Walmart’s earnings report is particularly significant, as the performance of this American retail giant provides valuable insight into the state of consumer spending in the country, a key factor linked to inflation.
