The week in the markets –
August 16, 2024


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Markets bounce back amid a conundrum

 

  • Market rebound: The Dow was back above 40,000, the S&P 500 over 5,500 by Thursday.
  • Economic signals: July inflation data hinted at a U.S. Federal Reserve rate cut, but retail sales were up by a very strong 1%.
  • Investor dilemma: positive data eased recession fears, but growth and rate cut expectations were conflicted.

It was a strong week for most markets, as last week’s manic Monday was largely forgotten. The current market structure these days tends to suppress volatility until it’s unleashed by shocks and surprises.

By Thursday afternoon, the Dow Jones was back above 40,000 and the S&P 500 above 5,500. Some favourable macro data releases helped the rally.

The July consumer price index inflation report out of the U.S., released this week, set the stage for a rate cut by the U.S. Federal Reserve (the Fed) in September. However, it didn’t clarify whether the Fed would prefer a 50-basis-point cut over a 25-basis-point reduction. The main issue for proponents of a larger cut was the rising cost of housing. Nonetheless, core inflation eased to 3.2% year-over-year, indicating a disinflationary trend. However, another problem for those hoping for a larger rate cut was that retail sales increased by a whopping 1% last month, much more than the 0.4% month-over-month increase that was anticipated. On the same day, Walmart reported strong results and raised its guidance, adding to the positive retail data and offering a new perspective on consumer demand. The consumer may have weakened somewhat, but it’s clear that there’s still a surprising amount of willingness and ability to spend.

The markets rallied strongly on the release of this data, as it eased the recession fears that built up last week. However, it seems like the market wants to have its cake and eat it too, when it comes to both dodging a recession and having eight rate cuts in the next 12 months. Because that’s what’s currently priced in, along with a growth in earnings of around 10%. This leads to a conundrum: if we do have a recession, it’ll be very unlikely that we’ll see a 10% growth in earnings. And if we don’t have a recession, it’s unlikely that we’ll get eight interest-rate cuts. Whatever happens, someone will end up disappointed.

Listen to this week’s podcast for further insights.

This week's market closing value - week ending August 16, 2024

(As of 4:00 PM ET.*)

EQUITY INDICES Level Change WTD YTD 1-year 5-year
      CAD CAD CAD CAD
S&P/TSX 23,052.97 776.58 3.49% 9.99% 15.85% 7.38%
S&P 500 5,549.85 205.70 3.50% 20.07% 27.41% 14.65%
DJIA 40,659.89 1,162.35 2.60% 11.37% 18.25% 10.13%
FTSE 100 8,311.41 143.31 2.88% 12.70% 16.15% 5.12%
CAC 40 7,449.70 179.99 3.13% 1.84% 5.15% 7.58%
DAX 18,322.40 599.52 4.04% 12.78% 18.91% 10.19%
Nikkei 38,062.67 3,037.67 7.56% 12.16% 20.06% 6.72%
Hang Seng 17,430.16 339.93 1.72% 5.76% -3.38% -6.81%
CURRENCY
RETURNS
CAD Change WTD YTD 1-year 5-year
US$ 1.3683 -0.0046 -0.34% 3.24% 1.11% 0.62%
Euro 1.5086 0.0096 0.64% 3.11% 2.47% 0.50%
Yen 0.0093 -0.0001 -1.02% -1.39% 0.20% -5.78%
CANADIAN TREASURIES Yield Change COMMODITIES USD Change
3-month 4.24 -0.03 Oil $76.77 -$0.28
5-year 2.99 -0.03 Gold $2,508.63 $77.98
10-year 3.06 -0.05 Natural Gas $2.12 -$0.03
CANADIAN PRIME RATE
6.70%