August 31, 2024 Market Update

Notwithstanding the potentially significant market moving events such as the Nvidia earnings and PCE data (Fed’s preferred inflation gauge), the U.S. markets stayed relatively calm this past week to put a lid on the turbulent month.  All three major equity indexes managed to post modest gains for the month, with the Dow posting a new all-time high on Friday.

The bond markets, on the other hand, experienced some volatility as the 10-year treasury rose 10 bps during the week.  The overall bond market, as measured by the Vanguard Total Bond Market ETF (BND), was down 0.52% for the week, but managed to post a gain of 1.45% for the month.

Gas prices have fallen to their lowest level in six months just ahead of the Labor Day weekend.  The national average price for a gallon of regular gasoline now stands at $3.31, with premium gasoline averaging $4.20 per gallon.  One year ago, regular gas was priced at $3.81 per gallon, while premium gas was at $4.68 per gallon.

Experts suggest that this trend could continue in the coming months, possibly leading to $3-a-gallon gasoline for the first time since 2021.  If this scenario plays out, it could positively impact both the markets and the broader economy.

Historically, lower gas prices boost consumer sentiment by leaving more disposable income in the hands of households.  This increased purchasing power can lead to higher spending in other areas of the economy, particularly in the retail and leisure sectors.  Increased consumer spending would benefit companies in these industries, and the prospect of higher revenues could drive their stock prices higher.

A sustained drop in gas prices would also ease some of the inflationary pressures that the Fed has been combatting with interest rate hikes.  If inflation shows signs of cooling, the Fed might decide to adopt a quicker approach to rate cuts.  Such a move could have broader implications for the stock and bond markets, as a more accommodative monetary policy typically supports higher equity prices by keeping borrowing costs in check.

The future direction of gas prices could depend on the weather.  A year ago, excessive heat forced Texas refineries to curtail operations, and Hurricane Idalia temporarily shut down oil production in the Gulf of Mexico, contributing to higher prices.  

Be that as it may, drivers should find a few more dollars left in their pockets after filling their gas tanks this weekend.

That’s all for now.  Have a great holiday weekend and invest wisely my friends.