Hello all - we hope you had a nice August.
Stocks saw a slight rebound this month. The Dow was up 1.3%, the S&P gained 2.6%, and the Nasdaq, which has a higher concentration of tech stocks, rose 3.9%.
Stocks saw a slight rebound this month. The Dow was up 1.3%, the S&P gained 2.6%, and the Nasdaq, which has a higher concentration of tech stocks, rose 3.9%.
Here’s a look at how the markets moved this month:
Here’s a look at how the various market sectors performed this month.
Stocks were much less volatile this month, too.
Checking in with oil, where prices are still high, but not as high as they were at the height of the Iran war.
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BONDS
Bonds grabbed most of the headlines this month.
The yields on bonds reached either all-time highs or multi-year highs this month, which means it’s more expensive to borrow money - like having a higher credit card or mortgage rate. A few things contributed to the yield rise, like very high government debt levels, high inflation, and AI-related companies taking on more debt to build out infrastructure.
These high yields became such a story that Treasury Secretary Bessent made a surprise announcement that the Treasury Department would be taking steps to bring those yields down.
They will be raising money by selling more shorter-term bonds, which have lower rates, and using that money to buy these bonds with higher rates.
This action is a form of “financial engineering,” where they try to manipulate a market. It’s not uncommon and it may work, but it also tends to weaken a currency. In fact, investments that do well when a currency weakens, gold and bitcoin, both saw sharp gains on the news.
They will be raising money by selling more shorter-term bonds, which have lower rates, and using that money to buy these bonds with higher rates.
This action is a form of “financial engineering,” where they try to manipulate a market. It’s not uncommon and it may work, but it also tends to weaken a currency. In fact, investments that do well when a currency weakens, gold and bitcoin, both saw sharp gains on the news.
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FED
Speaking of higher rates, the Fed was in the news this month with their annual “Economic Symposium” in Jackson Hole.
New Fed chief Warsh gave a speech where he talked tough on inflation, citing the need to bring inflation down. The Fed often raises interest rates when inflation is high to cool the economy and reduce inflation, so it led to many investors believing the Fed will raise rates soon.
To us, we think it is highly unlikely he will raise rates.
For one thing, it will do nothing to help inflation. The inflation right now is due to the Iran war and high energy prices. Raising rates will do nothing to solve that problem.
For another, it will raise borrowing costs. As we discussed above, another branch of the government is trying to bring rates down, and this won’t help that.
Finally, we just think there is no way he does, which is how he got this job.
We think the Fed might talk tough on raising rates but never will, and this eventual realization by investors will help stocks go higher.
For one thing, it will do nothing to help inflation. The inflation right now is due to the Iran war and high energy prices. Raising rates will do nothing to solve that problem.
For another, it will raise borrowing costs. As we discussed above, another branch of the government is trying to bring rates down, and this won’t help that.
Finally, we just think there is no way he does, which is how he got this job.
We think the Fed might talk tough on raising rates but never will, and this eventual realization by investors will help stocks go higher.
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INFLATION
Inflation numbers released this month showed another drop in prices.
The monthly inflation number did show a slight increase, though.
This CPI still saw oil prices lower on the month which is fighting in Iran re-intensified, so we may see a higher inflation print next month as a result.
This chart shows gas prices lower in the previous month:
Other basics like food continues to climb, with meat prices at record highs, for example.
When excluding food and energy (what economists call the “core” inflation), prices showed another rise.
Here’s a look at the inflation level for businesses, which remained slightly negative.
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OTHER ECONOMIC DATA
Other economic data releases were mixed this month.
Employment continues to trend lower and resulted in a net loss of jobs last month.
Both the manufacturing and service parts of our economy are expanding, while manufacturing looks very strong.
Retail sales showed a slight decline.
While durable goods showed a slight increase.
Consumer confidence continues to trend lower.
Finally, small businesses saw a nice increase in optimism.
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Where does the market go from here?
Stocks reached a very oversold level this month and had a nice rebound off those levels. The month-end saw some weakness, but there may be room to run higher.
There is a concern that there is underlying weakness in the market, though. Fewer and fewer stocks are above their recent averages, which is usually a red flag and something to keep an eye on.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
