Buyer Beware

Robert Eisenbeis, Ph.D.

Thu Aug 15, 2024

The week and a half following the FOMC’s July meeting has been filled with extreme market volatility, demonstrating behavior that experts say market participants should not do and that is to react to a single data point upon its release. We have had many such data and information releases, and it is useful to examine how the data releases have impacted market behavior.

Going into the FOMC’s July 30 – 31 meeting, the data suggested the economy was growing above trend. Q2 GDP was 2.8% versus 1.4% in quarter one. Jobless claims were up during the month of July from what they were in June but showed some volatility, rising from 235,000 on July 20 up to 245,000 on July 27th. As for inflation, PCE was still above the 2% target at 2.5% vs. the previous reading of 2.6%, and core PCE was at 2.6%. The data and forecasts enabled the FOMC to hold rates steady at 5.25–5.5%, with Chairman Powell suggesting that a rate cut might be on the table in September, though he tended to waffle a bit on that suggestion during the post-meeting press conference. This did not deter news media and market pundits from drumming up support for the cut. Markets soared after the press conference on the belief that a rate cut was at least possible in September.

But the rally was short-lived, following the release of the new claims for unemployment insurance on Thursday, August 1. They were up by 14,000 to 249,000, compared with the previous week’s 235,000 claims. Markets dropped significantly, with the Dow Jones and S&P off 1.2% and Nasdaq off 2.3%. The following day, new jobs numbers were down from 179,000 to114,000, and the unemployment rate jumped from 4.1% to 4.3%, and again there was a negative market reaction. The broad market index was down 1.84%, the Nasdaq Composite fell 2.43%, and the Dow Jones was off 1.51%. Robert Brusca (Chief Economist of Fact and Opinion Economics) noted, however, that the July data might have been tainted by the large displacement of workers due to the hurricane and that there were reportedly 436,000 workers displaced by weather compared with the July average of 40,000 making the displacement the largest in some 48 years (see Seeking Alpha, “The Economy Has Not Weakened Suddenly”, https://seekingalpha.com/article/4711429-the-economy-has-not-weakened-suddenly).

Friday’s decline was followed on Monday, August 5, with the sharpest falloff in the Japanese stock market since Wall Street’s Black Friday in October 1987. US markets mirrored the Japanese decline, with the Dow falling 1,034 points, or 2.6%, the Nasdaq off 3.4%, and the S&P declining 3.0%. This was despite FRB President Mary Daly’s message of optimism, in a speech delivered in Hawaii, regarding the FOMC’s achieving its inflation objective.

Things began to reverse on August 8 with the release of the new claims data, which showed a decline from the previous week’s 250,000 to a number close to the pre-FOMC meeting’s 233,000, lower than the consensus forecast of 240,000. The more positive employment data were bolstered by remarks by Philadelphia Fed President Barker and Kansas City Fed President Schmid, both of whom indicated that they thought inflation was on track to reach the committee’s 2% goal and, mirroring Chair Powell, that their confidence in achieving that goal had increased. Stocks gained a bit on Friday, with the S&P up 0.47%, the Nasdaq up 0.51%, and the Dow up 0.13%. That rally continued on Monday, August 12, with gains of less than 1% for the S&P and Nasdaq but a loss for the Dow of 0.4%. Those losses were replaced on Tuesday, buoyed by the early release of the Producer Price Index, which is regarded as a leading indicator of inflation. Markets closed with the S&P up 1.7%, the Nasdaq up 2.4%, and the Dow up 1%. As an example of the extremes that markets have experienced in July–August, the Dow closed on Wednesday, August 14, at40,008, down from a peak of 41,198 on July 17, after having hit a low of 38,703 on August 5 before rebounding.

This roller coaster since the last FOMC meeting reflects movements based upon fragmentary evidence with little meaningful information about where the economy is going, what is happening to inflation, or what the Fed is likely to do. But despite this, participants have experienced wide fluctuations in the value of their securities based upon questionable economic data. Buyer beware!

Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
Email | Bio

Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.

Material and commentaries published in the past may or may not be helpful in analyzing current economic or financial market activity. Please note publishing date when reviewing materials. Please email [email protected] for our current thoughts or to reach an advisor.

ABOUT

CLIENTS

INVESTMENTS

MEDIA

OUR TEAM

DISCLOSURES

800.257.7013