Good morning,

Last week’s market activity offered diverse takeaways, with significant variations between mega-cap stocks and the broader market. The mix of economic data, earnings reports, and monetary policy updates adds layers of complexity. For investors, these disparities can offer insights into market trends, highlight opportunities, and caution against potential pitfalls.

Table of Contents

Mega-Caps Outperform: Investors Should Be Cautious
Mixed Economic Indicators: A Signal for Caution
Special Spotlight: NVIDIA’s Post-Report Struggles
Retail Earnings: Indicators of Consumer Sentiment
Federal Reserve Maintains Status Quo
China’s Economic Woes: A Ripple Effect?
The State of Treasury and Currency Markets
Sectors to Watch
Conclusion
CALENDAR & MOVERS
The Road Ahead for the U.S. Central Bank
Residential Market Trends
The State of U.S. Bonds and Currency
BONDS
COMMODITIES
Oil & Energy
Precious Metals & Gold
CRYPTOCURRENCY

Mega-Caps Outperform: Investors Should Be Cautious
S&P 500: Saw a 0.8% increase
Invesco S&P 500 Equal-Weight ETF (RSP): Posted a fractional loss
Russell 2000: Was down 0.3%
S&P Midcap 400 Index: Remained flat
Nasdaq Composite: Gained a solid 2.3%
Dow Jones Industrial Average: Declined by 0.4%
The data shows that mega-cap stocks significantly influenced the performance of market-cap-weighted indices like the S&P 500 and Nasdaq Composite, both of which broke their three-week losing streaks. This divergence matters to investors because a market overly reliant on the performance of a few large companies can be more susceptible to volatility, particularly if those companies experience setbacks. Diversifying one’s portfolio could serve as a risk mitigation strategy in this environment.

Mixed Economic Indicators: A Signal for Caution
Existing Home Sales: Were weaker due to high mortgage rates and limited supply.
New Home Sales: Performed better than expected.
Preliminary Manufacturing and Services PMI: Showed deceleration and contraction in the manufacturing sector.
The economic indicators provide an essential backdrop for investment decision-making. The weaker-than-expected existing home sales and the contraction in manufacturing could serve as early warnings for an economic slowdown, suggesting a more cautious investment approach may be warranted.

Special Spotlight: NVIDIA’s Post-Report Struggles
Despite a strong earnings report from NVIDIA, the stock had trouble maintaining its gains. This scenario indicates that market expectations may already be high while the company is performing well. For investors, it might mean that much of the good news is already priced into the stock, limiting upside potential.

Retail Earnings: Indicators of Consumer Sentiment
The mixed bag from the retail sector, with disappointing results from Macy’s, Dick’s Sporting Goods, Dollar Tree Stores, and Foot Locker, is another sign of a potentially turbulent market. These trends in retail should not be overlooked, as they often serve as leading indicators of consumer confidence, a critical factor for market stability.

These companies have collectively painted a picture of a dwindling landscape impacted by cautious consumer spending and rising incidents of retail theft. As we transition into this week, the focus will shift to high-end retailers like Lululemon and Best Buy. Forthcoming reports from these companies will reveal if their consumer base remains as resilient as some have speculated. However, any signs of a downturn could serve as a warning that even affluent shoppers are not insulated from the repercussions of elevated inflation.

Federal Reserve Maintains Status Quo


Fed Chair Jerome Powell kept his message consistent regarding the 2.0% inflation target and potential rate hikes. For investors, the absence of surprises might offer some stability but also signals that inflationary pressures are far from easing. This message reinforces the need for investors to be vigilant about how inflation could erode real returns on investments.

China’s Economic Woes: A Ripple Effect?
The weakening economic data from China and the subsequent rate cut by the People’s Bank of China (PBOC) have global implications. For investors, China’s economy serves as a significant gauge of global economic health. A faltering Chinese economy could influence sectors such as commodities and manufacturing on a global scale.

The State of Treasury and Currency Markets
2-yr Note Yield: Ended at 5.05%, up 14 basis points for the week.
10-yr Note Yield: Closed at 4.24%, down one basis point for the week.
U.S. Dollar Index: Rose 0.8% for the week.
Treasury yields and the dollar index are significant as they often influence asset valuations and international investment flows. For instance, a stronger dollar could make U.S. assets more expensive for foreign investors.

Sectors to Watch
Best Performers: Information Technology, Consumer Discretionary, and Communication Services all posted gains.
Worst Performer: The energy sector was down due to concerns about China’s weakening economy.
For investors, sector performance can offer clues about where the market is heading. For example, the poor performance of the energy sector might suggest broader economic concerns, warranting caution or portfolio adjustments.

Conclusion
Last week’s uneven market performance carries important implications for investors. It highlights the need for diversification and attention to various economic indicators. In the face of mixed signals, vigilance and a calculated investment approach can help navigate potential market volatility.

CALENDAR & MOVERS
Tuesday, JOLTs Job Openings (July)
Wednesday, GDP (QoQ) (Q2)
Thursday, PCE (Fed Inflation)
Friday, Jobs Report

The Road Ahead for the U.S. Central Bank
Following Jerome Powell’s remarks last week at the annual Jackson Hole symposium, market players were left largely in the same state of understanding. Powell emphasized the Fed’s readiness to hike interest rates and projected that they will stay high for a prolonged period. He also mentioned that economic deceleration might not be as rapid as initially estimated. This week, two crucial data releases from the Fed will be a labor report and the latest inflation metrics. The release of the Personal Consumption Expenditures (PCE) index is scheduled for Thursday, the Fed’s preferred inflation metric. The employment data for August is expected to be publicized on Friday morning at 8:30 a.m. ET. Financial markets are keenly observing for any indications that economic growth may be tapering off, as this will impact the Fed’s timeline for rate hikes.

Residential Market Trends
Last week’s data revealed a contrasting landscape: sales of existing homes were dropping, while those of new homes were gaining traction, primarily due to a dwindling supply of existing homes. This reduced inventory has so far prevented a more drastic reduction in home prices. This Tuesday, investors can expect updated data on home prices from sources like the S&P/Case-Shiller National Home Price Index and the FHFA House Price Index for June. Despite growing concerns over housing affordability and increasing mortgage rates, prices are predicted to climb for the fifth consecutive month.

The State of U.S. Bonds and Currency
Investors should be vigilant about two key trends that linger from the previous week: the swift uptick in U.S. Treasury yields and the U.S. dollar. Both surged in the wake of Powell’s Jackson Hole speech last Friday. The yields on long-term government bonds reached their highest levels in 16 years last week. Should this week’s economic indicators prove favorable, we could see yields ascend even more as bonds become less attractive. Another development to watch is the U.S. dollar index reaching its peak level since May. Should the market anticipate more interest rate hikes, the dollar stands to gain further.

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Have a great week!



Irving Wilkinson
Editor
AlphaBetaStock.com

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