Weekend Update, August 5th, 2024: Summer Swoon or Summer Dip?

Index, Sector & Asset Performance

Global equities lost -2% last week led lower by Japan. Defensive, “boring” names outperformed Cyclicals while Value strategies outperformed Growth. Momentum factor stocks continued to sell off hard. Low volatility and contentment in the markets started to fade on July 24th, when the S&P 500 posted a drop of -2% or more for the first time in 17 months. After the Federal Reserve decided to hold rates steady at its meeting that ended Wednesday, equities came for sale, even though Chair Powell seemed to signal that rate cuts would be coming as soon as the next meeting in September. The Nasdaq 100 Index fell into a correction and the S&P 500 Index lost -3.2% in two days, its worst two-day stretch March 2023. With recent weakness, over 60% of the Nasdaq 100 stocks are in corrections (-10%), and 30% in bear markets (-20%).

The S&P 500 closed the week -2.05% lower. Per Goldman Sachs, Japan led all markets lower on the week.

Both the 10-year and 2-year Treasury yields fell below 4.0% last week, with the 2-year falling to its lowest level since May 2023 on Friday. In the US, the 2-Year and 10-Year US Treasury yields closed the week lower at 3.87% and 3.79%. Spot volatility surged, with the CBOE Volatility Index, or spot VIX, hitting 29.66 on Friday and over 65 this morning.  These are historically panic and forced selling levels.

Economic Indicators and Earnings Commentary

The July jobs report showed a weaker US labor market. Investor concerns over the health of the US consumer have increased. The 114k growth in nonfarm payrolls reported last Friday morning was the lowest initial release for that figure since January of 2021 with this, consumer discretionary stocks are now the worst performing sector YTD.

Global Market Trends/Commodities/Currencies

This morning Japanese stocks plunged with the Nikkei 225 Index plunging -13.2% for its worst session since the 2011 Fukushima nuclear meltdown. This is the Yen “carry trade” unwind.

Warren Buffett’s Berkshire Hathaway cut its gigantic stake in AAPL by 50%.

Also, this morning, Bitcoin crashed below $50K. Crypto related stocks are also down. The world’s oldest cryptocurrency plunged 15% in intraday trading

Circuit breakers were also activated for South Korea’s Kospi (KOSPI) after the index rapidly dropped -8%, while Australia’s ASX 200 (AS51) dropped nearly -4% for its worst session since June 2022.

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