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Stocks Rise
The three major U.S. large-cap stock indexes posted weekly gains and the NASDAQ and the S&P 500 both outperformed the Dow by wide margins, repeating a pattern from the previous week. In terms of market capitalization, a small-cap benchmark significantly outpaced its large-cap peers.
The S&P 500’s positive momentum over the latter half of August wasn’t enough to offset its decline earlier in the month, and the index fell about 1.8%, snapping a string of five positive monthly results. Energy was the only sector among 11 to produce a positive monthly result; utilities posted the biggest decline, according to S&P Dow Jones Indices.
Although August’s monthly U.S. jobs gain of 187,000 exceeded the downwardly revised figures for June and July, the longer-term trend points to a slowdown, as August’s total was well below the monthly average of 271,000 jobs over the past 12 months. The unemployment rate rose from 3.5% to 3.8%, but the increase was attributed in part to growth in the number of people entering the workforce.
Companies in the S&P 500 recorded an average earnings decline of 4.1% versus the same quarter a year earlier, according to FactSet data from the recently concluded earnings season. That result marked the third consecutive quarterly earnings decline. For the second quarter in a row, consumer discretionary posted the strongest earnings growth rate among all 11 sectors, as it again exceeded 50%.
The U.S. economy’s growth in the spring was modestly slower than initially estimated. Wednesday’s revision puts second-quarter GDP growth at an annual rate of 2.1%, rather than the 2.4% estimate released in late July. Stocks climbed after the revision, which could give the U.S. Federal Reserve a further rationale to potentially keep interest rates unchanged at its September 19–20 meeting rather than raising them.
The U.S. Federal Reserve’s preferred gauge for tracking inflation showed that consumer prices edged higher in July. The Personal Consumption Expenditures Price Index rose at a 3.3% annual rate, up from 3.0% in June. Excluding volatile food and energy prices, core inflation climbed 4.2% in July versus 4.1% in June.
After spiking above 5.00% the previous week, the yield of the 2-year U.S. Treasury bond retreated well below that threshold, as diminishing medium-term expectations for rate hikes set off a price rally for 2-year notes. On Friday, they were yielding around 4.89%, down from the previous week’s closing yield of 5.06%, which was just shy of a year-to-date high reached in early March.
An index that tracks investors’ expectations of short-term U.S. equity market volatility fell nearly 17% for the week, bringing it to its lowest level since January 2020. Other than a recent rise in early August, the CBOE Volatility Index’s (VIX) readings since early June have remained near the lowest levels since the pandemic.
Source: John Hancock Investment Management
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