S&P 500 Index: -2.3%
Dow Jones Industrial Average: -1.8%
Nasdaq Composite: -3.3%
US and International Equities
The equity markets sold off this week after a strong summer advance. Technology stocks, the year’s best-performing sector, led the market lower along with the Nasdaq. Given the weakness in technology, large cap value topped growth. Consumer staples, financials, materials, and utilities showed relative strength amid the weakness, while small caps’ fall was roughly in line with large caps’.
International stocks followed the US markets lower this week. Both the developed international and emerging market indexes, as denoted by MSCI EAFE and MSCI EM Indexes, posted negative returns. Japan’s Nikkei bucked the trend, gaining 1.4%.
The S&P 500 Index has finished higher in five consecutive months, the longest monthly win streak since six in a row in 2018. However, historically, gains have continued after such win streaks that hasn’t meant that gains were over. In fact, since 1957, the S&P 500 has had 26 other five-month win streaks and a year later it was higher 25 times. We discussed this in depth on the LPL Research blog.
“What a week, from new highs to many stocks down double digits,” explained LPL Financial Chief Market Strategist Ryan Detrick. “The truth is stocks were historically overbought in some cases, so this pullback is perfectly normal and probably healthy.”
Fixed Income, Currencies, and Commodities
High-quality bond returns were little changed this week, as market weakness drove Treasury yields lower late in the week. Commodities were broadly lower this week, as the US dollar bounced from oversold conditions. Gold fell more than 1%, while WTI crude oil prices fell back below $40 per barrel for the first time in four weeks.
The US dollar’s recent weakness versus the euro was in focus for top policymakers at the European Central Bank (ECB), which warned that if the euro keeps appreciating, it will weigh on exports, drag down prices, and intensify pressure for more monetary stimulus. Several members of the ECB’s governing council told the Financial Times that the euro’s rise versus the US dollar and other currencies risks holding back the Eurozone’s economic recovery, especially in the face of weak demand. Given the Federal Reserve’s (Fed) work on updating its strategic framework, the ECB feels a need to respond with its own review.
US Economic Data Recap
The week’s economic data was highlighted by the release of the August jobs report on Friday by the US Bureau of Labor. August nonfarm payrolls came in near expectations at 1.4 million jobs created, down from last month’s 1.7 million jobs. The unemployment rate declined to 8.4% versus an expected 9.8%. The report helped allay concerns about the pace of labor market improvement.
In other monthly data, the August Institute for Supply Management (ISM) manufacturing index increased to 56.0, above the consensus of 54.5 (Bloomberg). The index is at its highest level since November 2018. August was the third consecutive month above 50, the level that indicates expansion. New orders were over 67, the highest level since January 2004, while 9 of the 11 components also expanded. Improving manufacturing is a global theme, as China Caixin Manufacturing Purchasing Managers’ Index (PMI) also came in at a nine-year high.
Finally, the latest release of the Fed’s Beige Book, a qualitative survey of the Fed’s reporting districts, revealed that economic activity has improved modestly and Main Street sentiment is on the mend. Improvement was particularly pronounced in manufacturing and housing activity, while employment generally improved among reporting districts. While the Beige Book noted that considerable uncertainty remains, improving sentiment shows that policy actions have helped to stabilize the economy and growth is returning.
Next week, the following economic data is slated to be released:
- Economic data on Tuesday begins with August’s National Federation of Independent Business’s (NFIB) Small Business Index. Plus, July’s consumer credit from the Fed will be released.
- Wednesday is about the Job Opening and Labor Turnover Survey (JOLTS) for July from the US Bureau of Labor Statistics.
- Thursday provides investors another anticipated weekly initial unemployment claims report. August Producer Price Index (PPI) data also will be released.
- We wrap up the week Friday with the August Consumer Price Index (CPI), hourly earnings, average workweek, along with the Treasury Budget.
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