The AM Call: Was It All a Dream?

• If anyone was off-the-grid through the first two weeks of August, they could be forgiven for thinking not much happened in the markets during that time. Following last week’s equities rally (SPX +4%, CCMP +5.3%), broad U.S. equities are now slightly higher for the month of August. Bonds rallied as well, with the 10Y below 4% again at 3.87% as of this writing. The positive sentiment came after CPI data was in-line, leading markets to price in a September rate cut with certainty.

• The week ahead will turn the focus to the Fed’s annual Jackson Hole retreat, as markets look for clues about their thinking for the pace of rate cuts and the reaction function to the potential for an uptick in inflation going forward. Specifically, we note that although the Fed also two mandates: full employment and price stability, only one of them comes with a target level (2% core PCE).  It is not clear how the Fed will manage both priorities in case of sticky inflation (or potentially re-accelerating) inflation and rising unemployment.
• July CPI moved slightly higher MoM basis, matching estimates, with headline and core CPI up by 0.2% MoM, compared to core up 0.1% in June. On a YoY basis, headline CPI dipped to 2.9% (vs. 3.0% est. and prior), while core dropped slightly to 3.2% (from 3.3% in June), also matching estimates.

• July PPI Final demand and ex Food and Energy was up 0.1% and 0.0%, respectively, compared to the estimate for 0.2% for both. On a YoY basis, PPI Final Demand was up 2.2% (2.7% prior) and PPI Final Demand ex Food and Energy rose by 2.4% (2.6% est., 3.0% prior).

• July Advance Retail Sales climbed above expectations. Retail sales excluding the volatile auto and gas categories rose by 0.4% MoM, compared to estimates for a 0.2% increase, although down from 0.8% in June.

• In equities, Cisco (CSCO) and Deere & Co (DE) led positive earnings surprises, while Home Depot (HD) disappointed on consumers “deferral mindset.” Wal-Mart (WMT) and Applied Materials (AMAT) released in-line and predictable figures. In corporate news, Apple (AAPL) is working on a home tablet robot-like product line that it aims to be ready by early 2026 while also announcing it will allow rivals financial institutions to use its phone’s near field technology chips for transactions, Alphabet (GOOGL) revealed its new revamped smart phone lineup which is AI-centric, Rivian (RIVN) paused production of EV vans it makes for Amazon (AMZN) due to part shortages, Texas Instruments (TXN) received $4.6 bn in grants and loans from the CHIPs act, Johnson & Johnson (JNJ) is reported to reach a $6.5 bn, 25-year agreement to settle its baby talc power class action lawsuits, and Starbucks (SBUX) announced current Chipotle Mexican Grill (CMG) highly regarded CEO Brian Niccol as its new CEO. In M&A news, Mars acquired cereal maker Kellanova (K) for $36 bn including debt. Bill Ackman’s Pershing Square revealed a stake in Nike (NKE).
• Every equity sector was higher on the week. Tech and consumer discretionary were the leaders, real estate and utilities were the laggards.

• For the year-to-date, tech, communications, and utilities are the best while consumer discretionary, real estate, and materials are the worst.

The Week Ahead

• We have a very busy week ahead, with focus on the Democratic National Convention in Chicago and the Fed’s annual Jackson Hole symposium. Fed Chair Powell is expected to speak on Friday at 10 am Eastern. Markets will be looking for hints regarding the magnitude of the September cut as well as guideposts for the pace further cuts and the end point destination for rates over the long term. Markets are pricing in over 70% chance of a -25 bps cut in September. We also get new home sales and durables goods orders for July this week.

• This week, Lowe’s (LOW), Target (TGT), TJX Co (TJX), Ross Stores (ROST), Dollar Tree (DLTR), Analog Devices (ADI), Palo Alto Networks (PANW) and Snowflake (SNOW) are among companies set to report 2Q24 earnings.

Market Summary – Returns and Yields

• Equities and bonds rallied. The VIX fell back under 20.

For additional insights, be sure to check out last week’s blog post.

Definitions, sources, and disclaimers

Definitions:

• Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
• GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
• The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
• Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
• The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
• The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
• The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
• Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
• Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
• The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
• The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.  

Important Disclosures:

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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