Weekend Update, August 12th, 2024: Yen There, Done That

August 12, 2024

Index, Sector & Asset Performance

The S&P 500 is down about -6% from its July 15th peak. During the last 2-week selloff, the cash S&P 500 approached -9.7% peak to trough, but it regained almost all its early last week losses to finish near spot on flat on the week. Weaker job growth and a Fed that is “too tight for too long” has triggered fears of a recession coming over the next 3-12 months. Small-caps and tech stocks led declines on a relative basis due to their leverage to economic growth and to the market. Volatility spiked much higher in the front end. History says that volatility induced by growth scares will gradually recede back lower over the coming 2 weeks to 2 months. Per Goldman Sachs Research.

Exhibit 2: S&P 500 returns following 10% corrections.

The last notable “Yen-carry trade implosion” occurred almost the same week in August 2007. It was one of the early credit alarms to an 18 month down cycle that began in the late 3rd quarter 2007 after the S&P 500 regained and made new ATH’s in October 2007. Please view this coming week’s Stock Talk to be released Friday for more detail on this subject.

Performance of global indices (as of August 12, 2024) and Exhibit 3: MSCI AC World sector performance tables.

 

Spot volatility surged, with the CBOE Volatility Index, or spot VIX, hitting 29.66 on Friday and over 65 Monday morning. These are historically panic and forced selling levels. By Friday spot volatility had subsided back to near 20.

Economic Indicators and Earnings Commentary

This week U.S. economic data includes updated figures on inflation with the release of July’s PPI (Tuesday) and CPI (Wednesday) reports. July’s retail sales report (Thursday) will also be widely followed. The consensus believes the July CPI report is likely to show a moderation in the headline inflation rate. The growth of consumer prices is expected to slow to +2.9% y/y compared to +3% in June. Core inflation is expected to remain steady at +3.3%.

Earnings season slows this week, but updates from WMT, HD, DE, and CSCO are coming. Also, results from AMAT, CAH, RST, TPR, EAT, MRCY, among a few others might move some sectors.

Global Market Trends/Commodities/Currencies

Exhibit 1: Global market performance.

Oil rallied over +2.5% on the back of escalated Middle East tensions and lower US inventories. Gold approached another new high and is up 17.8% YTD. Doctor Copper continued its anemic performance falling -2.9% on weaker China growth.

OHFG Exclusive Data & Charts

Oak Harvest Weekly Stock Talk: Stock Market Volatility: Seasonality or More?

Week Ending 8/9/2024 tables.