Global equity markets finished higher for the week. In the U.S., the S&P 500 Index closed the week at a level of 5,635, representing an increase of 1.47%, while the Russell Midcap Index moved 1.55% last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 3.62% over the week. As developed international equity performance and emerging markets were higher, returning 2.77% and 0.70%, respectively. Finally, the 10-year U.S. Treasury yield moved lower, closing the week at 3.80%.
“The time has come for policy to adjust,” echoed through the Teton Mountain range during the Jackson Hole economic symposium as Fed Chair Jerome Powell gave his first verbal cue to the world in 28 months regarding interest rate cuts in the United States. The comments came as a clear change in direction for the U.S. central bank, which has made a pivot away from price stability and focused more on labor market weakness. While inflation has been inching its way towards the Fed’s 2% target, the unemployment rate ticked up in July to its highest rate (i.e., 4.3%) since October of 2021. During his speech last Friday, Powell stated, “The cooling in the labor market conditions is unmistakable” and “We will do everything we can to support a strong labor market as we make further progress towards price stability.”
While the likelihood of an interest rate cut in September is all but certain, Powell did not show his hand as to whether the Fed would consider a cut of more than 25 Bp (i.e., 0.25%). Importantly, this upcoming week has a slew of economic data reports that may influence the magnitude of rate cuts or the total number of cuts over the balance of 2024. Last week, traders increased their probabilities of more aggressive cuts after the Labor Department announced a downward revision of 818,000 jobs to non-farm payrolls measured from 12 months through March 2024. The revision would be the largest negative revision since 2009, implying greater weakness in labor market job creation.
While interest rate cuts have been at the forefront of investor anticipation in 2024, there are still significant uncertainties when it comes to the state of the economy and the influence of the Federal Reserve. Are markets pricing in enough cuts, or perhaps too many? For these reasons, we suggest that investors stay focused, understand what is within their control, and work with financial professionals to ensure that their portfolios are invested properly in line with their objectives, time horizon, and risk tolerance.
Best wishes for the week ahead!
Employment data is sourced from The Department of Labor. Economic Calendar Data from Econoday as of 8/26/24. International developed markets are measured by the MSCI EAFE Index, emerging markets are measured by the MSCI EM Index, and U.S. Large Caps are defined by the S&P 500 Index. Sector performance is measured using the GICS methodology.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.