Macro Overview
August 2024 was marked by a mix of economic indicators and central bank signals across major global economies. In the United States, inflation showed signs of cooling, with the core Personal Consumption Expenditures (PCE) price index rising by just 0.2% month-over-month. This, coupled with a revised upward GDP growth of 3.0% for Q2, suggested a stronger-than-expected economic performance. The Federal Reserve’s focus shifted from inflation to employment, with expectations of a rate cut in September gaining traction.
In China, the economic outlook remained challenging, with a continued slowdown in the property market and industrial production. The People’s Bank of China intervened in the bond market to support local yields. Germany’s economic performance was mixed, with GDP contracting slightly and inflation easing, which buoyed market sentiment and led to record highs for the DAX index.
Interest Rates & Employment
The Federal Reserve’s hint of an upcoming rate cut at the Jackson Hole meeting led to market expectations shifting towards a 33 basis point cut in September. This reflected a broader anticipation of a more accommodative monetary policy in response to easing inflation pressures. While the U.S. labor market continued to cool, it did not to the extent that would prompt immediate recession concerns.
Global Economic Variables
The economic sentiment in Europe remained fragile, with Germany’s economic indicators failing to meet expectations. The European Central Bank (ECB) kept a cautious eye on inflation and wage data. China’s economic troubles persisted, with sluggish consumer spending and a weak property sector contributing to broader global market uncertainties.
Asset Classes Overview
Equities exhibited varied performance through August. U.S. equities, despite some volatility, ended the month with mixed results. The S&P 500 and Nasdaq showed resilience, with notable gains earlier in the month. The Nasdaq Composite surged significantly mid-month due to strong retail sales and positive earnings reports but experienced declines later due to mixed reactions to AI-related news and earnings.
European equities performed strongly, with Germany’s DAX reaching record highs amid easing inflation expectations. Conversely, China’s equity markets struggled under the weight of ongoing economic challenges and weak consumer confidence.
In India, the stock market demonstrated notable strength, driven by robust domestic institutional buying and positive global cues. The Sensex and Nifty both experienced significant gains, though concerns about domestic economic conditions and foreign institutional selling tempered the optimism.
Fixed Income bond markets reflected expectations of more dovish central bank policies. U.S. Treasury yields exhibited stability in anticipation of interest rate cuts, with short-term yields declining and long-term yields showing some upward movement. The UK also saw a decline in gilt yields following softer-than-expected inflation data. Meanwhile, China’s bond market received support from central bank interventions.
Commodities markets were under pressure due to China’s economic slowdown impacting demand. Crude oil prices showed some stability by the end of the month, buoyed by supply constraints despite weaker global demand. Base metals continued to face headwinds from weak demand in China, while gold prices remained steady, supported by ongoing economic uncertainty.
Currencies markets were influenced by central bank expectations and economic data. The U.S. dollar remained resilient amid global uncertainties, while the euro gained strength against the dollar, buoyed by expectations of potential rate cuts in the Eurozone. The Chinese yuan faced pressure due to persistent economic challenges in China.
Conclusion
August was a month of significant economic and market developments. While the U.S. showed signs of resilience with cooling inflation and robust GDP growth, global uncertainties, particularly from China and Europe, continued to shape market dynamics. The anticipation of rate cuts and evolving economic indicators will be crucial in guiding market sentiment and investor strategies in the coming months.
September 2024 Stock Market Forecast
As September 2024 unfolds, the stock market demonstrates continued resilience, buoyed by encouraging first-quarter earnings that have helped to dispel investor concerns about inflation and potential delays in Federal Reserve interest rate cuts. The S&P 500 has advanced 10% year-to-date, reflecting investor optimism despite mixed economic data and fears of a cooling economy. Historically, September has been a strong month for equities, and many market participants are hopeful that this trend will persist as the index maintains its positive momentum.
The central focus for investors in September will be inflation and Federal Reserve policy. Despite a decrease from last year’s highs, inflation remains above the Fed’s 2% target. Federal Reserve Chair Jerome Powell has acknowledged that the journey to lower inflation might be prolonged, suggesting that high interest rates could persist longer than previously anticipated. While some experts, like Comerica’s Bill Adams, foresee potential rate cuts by September, the market’s direction will largely depend on upcoming economic data and the Fed’s policy responses.