As if investors didn't have enough to consider with earnings season in full swing, bad economic data released late in the trading week raised new concerns of whether the U.S. economy is falling into recession.
July 2024 is, after all the most likely month the recession for which the recession forecasting method we've been following indicates would represent Month 0 of a new recession, marking the peak of economic expansion for the economy. But we won't know that for some time to come, after the National Bureau of Economic Research might get around to making that determination.
Combined with jobs data that confirms rising the nation's rising unemployment rate has triggered the so-called "Sahm Rule" signaling a near-real time indicator of the arrival of negative economic conditions, bears have taken charge of Wall Street as investors focus on the gathering recessionary storm clouds.
Unsurprisingly, that new information sent stock prices lower. The S&P 500 (Index: SPX) dropped a little over 2% from its previous week's close, ending Friday, 2 August 2024's trading at 5,346.56. As recently as Wednesday, 31 July 2024 had been over 1.1% higher than its previous week's closing value as the Fed signaled it was set to begin cutting short term interest rates in September, so the bearish reversal is larger than it appears in the week-to-week change.
At this time, the dividend futures-based model's alternative futures chart indicates the trajectory of the S&P 500 remains consistent with investors focusing their forward-looking attention on the distant future quarter of 2025-Q2, though it is near the low end of range we would expect for that scenario.
Speaking of expectations for interest rate cuts, the CME Group's FedWatch Tool forecast has changed. While the tool still anticipates the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 18 September (2024-Q3), when the Fed is expected implement a quarter-point reduction in this interest rate, it now projects future cuts will be much more frequent, with quarter point rate cuts taking place at six-week intervals.
Here are the week's market moving headlines. Note the change in tone that takes place with the arrival of new information after Wednesday, 31 July 2024.
- Monday, 29 July 2024
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- Signs and portents for the U.S. economy:
- Oil falls by 2% as Israel officials seek to avoid broader Middle East war
- US home insurers suffer biggest loss of century in 2023
- Fed minions expected to sit on their hands one more time, before finally snapping into rate cutting action in September 2024:
- Fed likely to hold rates steady one last time as inflation fight finale unfolds
- US yield curve nears flip with jury out on recession signal
- Mixed economic signs developing in China:
- BOJ minions being forced by inflation and falling currency into rate hikes they'd rather not:
- BOJ's victory lap on deflation paves way for rate-hike cycle
- Japan's top council urges govt, BOJ to guide policy with eye on weak yen
- S&P 500 rises slightly ahead of key results, data, Fed meeting
- Tuesday, 30 July 2024
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- Signs and portents for the U.S. economy:
- Bigger trouble developing in China:
- China's manufacturing activity seen extending decline in July
- China July non-manufacturing activity expands at slower pace
- BOJ minions thinking about hiking rates when other central banks are getting ready to start cutting them, falling currency likely to force hand:
- BOJ to debate rate hike timing as Fed opens door to cuts
- Japan June jobless rate falls to 2.5%, job availability slips
- Yen weakens on last minute doubts about BOJ hike
- Mixed economic signs in Eurozone:
- Euro zone economy grows but outlook far from rosy
- German economy unexpectedly shrinks in second quarter
- S&P 500, Nasdaq stumble on caution ahead of tech earnings
- Wednesday, 31 July 2024
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- Signs and portents for the U.S. economy:
- Oil rebounds after Hamas leader killed in Iran, but China caps gains
- Tougher US credit conditions may help pave Fed's rate-cut path
- Slowing wage gains restrain US labor costs in second quarter
- Fed minions signal rate cut coming in September 2024:
- Bigger trouble developing in China:
- China's factory activity contracts for first time in 9 months, Caixin PMI shows
- China's weak factory PMI exposes pain points in export juggernaut
- Mixed economic picture in Japan:
- Japan June factory output falls 3.6% m/m
- Japan June retail sales rise 3.7% year-on-year, better than forecasts
- BOJ minions hikes rates, thinks about cutting back on quantitative easing, plans to keep bailing out Japan's currency:
- BOJ raises interest rates, lays out bond taper plan
- Yen leaps after BOJ decision, month-end keeps currency markets nervy
- ECB minions looking to cut Eurozone interest rates get data they didn't want:
- Nasdaq, S&P 500 post best day since Feb after Powell signals possible rate cut in Sept
- Thursday, 1 August 2024
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- Signs and portents for the U.S. economy:
- Oil rises on risk of broadening Middle East conflict
- US weekly jobless claims highest in nearly a year amid summer volatility
- US manufacturing gauge drops to eight-month low
- US construction spending extends decline in June
- Bigger trouble developing in China:
- Major central banks' rate cuts gather pace
- BOJ minion says more rate hikes to come in Japan:
- Nasdaq loses 2%, Dow tumbles as soft-landing optimism fades; Meta shares advance
- Friday, 2 August 2024
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- Signs and portents for the U.S. economy:
- US unemployment rate hits 4.3% as job growth slows considerably
- Oil settles at 8-month low after disappointing US job numbers
- US factory orders fall more than expected in June
- Fed minions now expected to deliver bigger and/or more frequent interest rates as signs U.S. economy is faltering increase, Fed minion pushes back:
- Fed rate cuts loom large as job market slows sharply
- Fed seen cutting rates by half a point in Sept, after weak jobs data
- Fed's Goolsbee: don't want to 'blow through' full employment
- Bigger trouble, stimulus developing in China:
- China's stuttering recovery darkens global corporate growth outlook
- China needs more than 'incremental' consumer stimulus longer term
- BOJ, JapanGov minions worried about falling currency:
- S&P 500 slides 2% for the week as narrative shifts to fears over hard landing, recession
The Atlanta Fed's GDPNow tool's forecast for real GDP growth during the now current quarter of 2024-Q3's is +2.5%, down from last week's initial estimate of +2.8% growth.
Image Credit: Microsoft Copilot Designer.. Prompt: "An editorial cartoon of a Wall Street bear charging through the stock market with a storm cloud labeled 'RECESSION' following it. ".