Tax Man and Seasonality Cometh
Stocks and bonds dropped last week, mainly on Friday, giving us our worst week in months and the Dow and S&P 500’s worst week of the year. On Friday alone, the Dow Jones Industrial Average fell by -1.2%, the S&P 500 dropped -1.5%, the Nasdaq Composite decreased by -1.6%, and the Russell 2000 dropped -1.9%. Reports suggesting a potential attack by Iran on Israel ahead of the weekend spurred fears, leading to a sell-off in the markets, a sharp rise in volatility, and a rise in oil prices to $85.58 per barrel, a +0.7% increase, due to concerns over supply disruptions.
The U.S. dollar rallied, as investors sought a safe haven asset and as the market cut its expectations for Fed policy rate cuts throughout 2024. Last week’s CPI report served as the primary catalyst for the week, showing a third consecutive +0.4% increase in the core index of inflation.
While inflation is historically seasonal, interest rates rose at 15-to-16 bps for short term Treasuries and 7 bps for longer dated Treasury maturities. Equity prices fell across all indexes with the DJIA -2.4%, S&P 500 -1.6%, and NASDAQ Composite -0.5%. The dollar gained +1.3% hitting its highest level since last November as the Japanese Yen continued to weaken. Good for summer travelers abroad, but not what most equities in the US like. Gold hit a new all-time high in dollar terms settling the week at $2,345 per oz.
Risk sentiment rose last week on the back of the stronger inflation data and carried over into the weekend on the escalation of events in the Middle East. Historically speaking, geopolitical shocks like the ones we are currently seeing have caused shorter term equity volatility, but generally not longer-term declines.
Late Friday, the Biden administration along with the LME, London Metal Exchange, moved to ban new Russian metal. The U.S. and U.K. governments announced jointly on Friday fresh restrictions on Russian aluminum, copper and nickel focused on Western exchange activity. These moves end the future supply of newly produced Russian metal in the LME, but also lessen the stickiness of those units currently held on exchange and increases the risk of draws particularly in copper and aluminum. This should reduce Russian activity in the metals markets.
This morning Goldman Sachs reported strong earnings and its stock is gaining about +4%. Tesla’s stock was down -3% this morning as it eyes layoffs of up to 10% of its workforce on slower demand for EVs. Trump Media stock plunged another -18% in premarket trading as the company filed to issue millions of additional shares of stock.
Click here to watch the Oak Harvest Weekly Stock Talk: Market Analysis Scenario 2 – Hard Landing and recession, S&P 500 = 3600-3700
