Dumaine Investments Weekly Market Update – August 30, 2023
• After posting meaningful losses in the first half of August, US stocks rebounded over the past week on optimism about a possible pause in interest rate hikes by the Federal Reserve. Job openings for July were meaningfully lower than consensus forecasts, and markets responded by rising sharply on the view that Fed officials would be more likely to take a pause in raising interest rates at their September meeting. Hawkish comments by Fed Chair Powell last week in Jackson Hole have been largely discounted by Wall Street.
• In our view, there continues to be a conspicuous dislocation between Fed policymakers and the direction of the market. In his remarks last week, Chair Powell alluded to concerns about recent economic growth being above expectations as well as consumer spending remaining robust. He also emphasized the Fed’s ongoing focus on core inflation, which continues to be well above trend and has proven to be more persistent than headline CPI. Perhaps most significantly, Powell closed his speech with this simple declaration: “We will keep at it [the task of restoring price stability] until the job is done.” By using this specific wording, Powell was wrapping himself in the mantle of Paul Volcker – widely respected for his success in the early 1980s for quelling the biggest burst of inflation in the modern era.
• With a large batch of economic data released Wednesday, the overall picture for the US economy continues to be mixed. While second-quarter GDP came in slightly below expectations, the closely-watched consumption component of the report rose modestly. Likewise, ADP employment data once again came in below expectations, but the July number was also revised upward by roughly 50K jobs. Additionally, European inflation continues to be stubbornly high, as data for both Spain and Germany were slightly above forecasts.
• Looking forward, all eyes will be on Thursday’s inflation and personal spending data, as well as Friday’s unemployment and non-farm payrolls. These reports will be closely monitored by the Fed as it considers an interest rate action at their meeting on September 19.
DISCLAIMER: The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Investment decisions should be based on individual financial goals, risk tolerance, and consultation with a qualified financial professional.