Please take note of the key insights from the market:
Major U.S. stock indexes are expected to conclude August with minimal changes following a significant early-month sell-off recovery. Investors’ focus shifted to rate-sensitive stocks and dividend-paying investments as they anticipated interest rate cuts from the Federal Reserve.
Wall Street is expected to witness the long-anticipated rate cuts next month, contingent on the forthcoming labor market and inflation data. Friday saw a rise in U.S. stocks, concluding one of the most volatile trading periods in recent years.
A Closer Look at Market Performance
In August, the S&P 500 climbed over 2%, ending the month just 0.5% below its record high. The Dow Jones Industrial Average gained more than 1%, and the Nasdaq increased by 0.7%. These gains signify a considerable recovery from the earlier market turmoil, demonstrating the market’s resilience amid uncertainty.
Despite ending August positively, the month witnessed significant volatility and shifts in market dynamics.
A Rocky Start to the Month
The beginning of August saw a plunge in major indexes due to weak manufacturing and jobs data, generating fears about a potential economic recession resulting from the Federal Reserve’s delayed rate cuts. Additionally, a surprise rate hike by the Bank of Japan led to a rapid unwinding of the yen carry trade, intensifying the U.S. stock sell-off. The Cboe Volatility Index (VIX) surged to a four-year high, and the S&P 500 lost over 6%, or nearly $3 trillion, in the initial three trading days of the month.
However, the market swiftly reversed course, experiencing its best week of the year as labor market concerns eased and corporate earnings reports revealed the fastest profit growth since 2021.
A Shift in Market Leaders
The August rally looked notably different from previous ones. The “Magnificent Seven,” comprising the most prominent U.S. tech companies such as Apple, Amazon, and Microsoft, faced challenges in bouncing back from their most extended slump in years. In contrast, sectors like Consumer Staples, Real Estate, and Healthcare emerged as the top performers in August as investors flocked to rate-sensitive stocks and dividend payers in anticipation of rate cuts.
What September Might Hold for Stocks
Historical data portray September as a challenging month for stocks. While past performance does not ensure future results, several upcoming events could potentially boost the market, offering a glimmer of hope for investors.
On September 9, Apple (AAPL) is expected to unveil the iPhone 16, featuring its latest operating system capable of running generative AI. This launch could bolster Apple’s stock and the overall tech sector. Moreover, Wall Street will likely witness the long-awaited interest rate cuts when the Federal Reserve concludes its next policy meeting on September 18.
The pivotal question for the upcoming Fed meeting will revolve around the aggressiveness of the rate cuts. Fed funds futures trading data showed a 30.5% chance of a half-percentage-point cut on Friday morning, up from about 13% a month ago. However, Wall Street considers a more minor quarter-point cut the most likely outcome.
As the month unfolds, Wall Street will closely monitor the August inflation data, due September 11. This data will offer insights into the current state of inflation, a critical factor in the Fed’s rate cut decision. Additionally, the August jobs report on September 6 will be crucial in the Fed’s decision-making process as it endeavors to manage inflation without stifling the labor market.
Update—August 30, 2024: This article has been updated to reflect Friday’s market close.
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