The Bank of Japan hiked interest rates for the second time this year in late July, which unsettled the markets. This caused the yen carry trade, which involves investors borrowing extremely low-cost yen to purchase other assets with greater yields, to start to fall apart. Last week, when Japanese equities saw their worst day in decades, the unwinding reached a head. A depressing jobs data from July incited worries of a recession has the US. US bond rates and stocks fell sharply.
However, a plethora of positive economic news this week has assisted the market in somewhat recovering its losses. Once again, the Dow is above 40,000. On track for their greatest week of the year are all three of the main indexes. This week, the Nasdaq Composite has gained 5.1%, the S&P 500 has added 3.7%, and the blue-chip index has gained 2.7%. The benchmark index is now up for the month and has fully recovered from its devastating losses from last week.
The Cboe Volatility Index, or VIX, which is used to measure anxiety on Wall Street, dropped to 15 from 65 last Monday. That was also the index’s highest one-day point increase since March 2020.
In a note published on Thursday, Ed Clissold and Thanh Nguyen of Ned Davis Research stated, “The bull market has not been derailed.” “Traders appear to be moving past the initial earthquake of the yen carry trade unwind, even though more aftershocks are possible.”
According to Geoffrey Strotman, senior vice president at Segal Marco Advisors, “investors are still on edge, sensitive to economic data as they look ahead to the Federal Reserve’s next meeting in September,” despite their calm. Before making its next policy announcement on September 18, the Fed will analyze the labor and other inflation data for August, as well as the Personal Consumption Expenditures Price Index for July.
Although some officials of the central bank have recently stated that they are in a wait-and-see mode, traders are still placing bets on a September interest rate cut. While inflation has decreased recently, Atlanta Fed President Raphael Bostic stated on Tuesday that more effort needs to be made in bringing down prices.
At an American College of Financial Services meeting, Bostic stated, “We need to make sure that the trend is real.” “A cut is coming, but I’m willing to wait.”
This week’s data indicate that inflation is really declining. According to the Bureau of Labor Statistics, consumer prices increased 2.9% in the year that ended in July, falling short of 3% for the first time since March 2021.Moreover, US wholesale pricing increases slowed.
There was more good news in the most recent retail sales data. After a downwardly revised decrease in June, US retailer sales increased by 1% in July, significantly exceeding experts’ forecasts. That indicates that the US consumer, a vital pillar of the US economy, is still strong.
The September rate decrease has been made possible by the barrage of economic statistics, though it is unclear if the Fed would just lower rates by a quarter or a half point. The CME Fed Watch Tool shows that traders’ estimates for a half-point drop in September have decreased from 51% a week earlier to 30%.
The US small-cap stock benchmark Russell 2000 index has increased 2.5% this week as investors bet that the Fed will lower interest rates in September. Usually, small-cap stocks outperform after the initial reduction in a Fed easing cycle.
However, Fed Chair Jerome Powell is scheduled to speak at an economic summit in Jackson Hole, Wyoming, next week, before to the central bank meeting. Powell has already hinted to the Fed’s upcoming policy decision using the summit.
This has occasionally caused dramatic fluctuations in the markets. Following the speech from the previous year, equities fluctuated and ended the session somewhat higher. They fell precipitously in 2022, with the Dow plunging more than 1000 points following Powell’s warning that increased rates would cause further suffering.
This week, the Organization of the Petroleum Exporting Countries lowered its prediction for the rise of the world’s oil consumption in 2024 and 2025, which resulted in a decline in crude prices elsewhere. Citing waning expectations in China, the company revised its forecast for 2024 to 2.11 million barrels per day, down from 2.25 million last month.
In business news, Starbucks announced on Tuesday that CEO Laxman Narasimhan will be leaving immediately. Brian Niccol of Chipotle will take over as CEO starting next month, and the company’s shares have already surged 26.4% this week. Niccol assisted in the turnaround of the burrito company following the hospitalization of 22 individuals due to an E. coli outbreak in 2018.
Walmart’s stock has increased 7.7% this week following the company’s announcement that operating income increased and that US sales at stores operated for at least a year increased last quarter. Following the company’s downward revision of sales projections in its quarterly results on Tuesday, Home Depot’s shares fell 2.2%. Additionally, the business cautioned that consumers are cutting down on their expenditures on remodeling initiatives.
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