WEEKLY MARKET RECAP – AUGUST 9, 2024

The major indexes ended the week slightly lower, recovering from the biggest sell-off in nearly two years. The S&P 500 came close to correction territory, down 9.71% from its January high on Monday, while the Nasdaq Composite dropped 15.81% from its peak after entering correction territory the previous Friday. The CBOE Volatility Index (VIX) spiked to 65.73 on Monday, its highest since March 2020, before falling to 20.69 by week’s end.

Market swings were partly driven by technical factors and programmed trading strategies. A modest rise in Japanese short-term interest rates led to the unwinding of the carry trade, where investors borrow at low rates in Japan and invest in higher-yielding assets elsewhere. As the yen strengthened, many investors exited their positions. Conversely, short covering and stock buybacks helped support the market on Monday, while the summer vacation season likely exacerbated volatility.

Ongoing concerns about recent negative economic data, including a surprise rise in the unemployment rate and weak manufacturing signals, also weighed on the market. Several major companies, including Airbnb, Delta, and Disney, reported signs of weakening consumer demand.

However, S&P Global data showed resilience in the services sector, with its activity gauge slightly down to 55.5 in July but still in expansion territory. The Institute for Supply Management’s index also rebounded to 51.4 from a contractionary 48.8 in June. A drop in weekly jobless claims contributed to a rally, with the S&P 500 posting its best daily gain since November 2022.

Economists highlighted that bad weather and temporary layoffs might explain the higher unemployment rate. The Fed could potentially start cutting interest rates in September, with up to two more cuts this year.

As labor market fears eased, the yield on the 10-year Treasury rose, and assets in the Fed’s overnight reverse repo facility dropped to a three-year low. The tax-free municipal bond market faced its heaviest issuance of the year, but some deals struggled due to weak demand. Meanwhile, the investment-grade corporate bond market saw volatility, with a surge in issuance on Wednesday totaling USD 32 billion, while the high-yield bond market remained quiet amidst broader market volatility.

Major U.S. Economic Reports

Closing Prices for the Week

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