September 7, 2024 Market Update

Weaker than expected economic data released this past week once again reignited investors’ fears of the slowing U.S. economy and that the Fed may have fallen behind the curve by staying higher for longer.  All major U.S. indexes posted significant losses for the week with the tech heavy Nasdaq down by about 5.8%.  The Dow Jones Industrial Average, with its value tilt, fared better and was down roughly 3%.

The risk-off sentiment in the equity markets boosted demand for bonds, resulting in the 10-year treasury yields dropping by 20 bps to close the week.  The Vanguard Total Bond Market ETF (BND), a proxy for the overall U.S. bond market, was up 1.24% for the week.

U.S. manufacturing continues to lose steam.  The Institute for Supply Management’s (ISM) Purchasing Managers' Index (PMI) dropped to 47.2 in August.  Since any PMI reading below 50 signals contraction, this highlights the ongoing struggle for a sector that makes up about 10.3% of the U.S. economy.  Meanwhile, the Federal Reserve’s Beige Book reports flat or declining activity in most regions.

The labor market is also showing cracks.  A report from the Labor Department revealed that job openings in July fell to their lowest level since January 2021.  August nonfarm payrolls came in below expectations, with just 142,000 jobs added.  Adding to the concern, both June and July payroll numbers were revised down significantly.

Across the globe, China is facing its own challenges.  The second quarter saw China’s GDP grow by 4.7%, falling short of the government’s 5% target.  This slowdown, down from 5.3% in Q1, reflects weaker consumer demand and a sluggish recovery in household credit and spending.

A simultaneous slowdown in both the U.S. and China has big implications for global markets.  Given how interconnected these economies are, U.S. investors should keep a close watch.  That said, weaker economic data could prompt the Federal Reserve to pivot toward cutting rates, which might turn into a silver lining for U.S. markets.

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