The weekly market reports include a market position update, a stock market forecast, and an analysis of capital markets. To access the full report, you must subscribe to Premium Articles, Weekly Premium Articles, or an All-in-One subscription.
Included in this report:
- Weekly summary.
- Update on market positioning.
- Stock market forecast.
- Capital markets update.
1. Weekly Summary (September 3–September 6, 2024)
- Stocks had their worst weekly performance in more than a year due to rising odds of a recession and growing political and geopolitical risks.
- Large-cap stocks (SPY) fell 4.2%, the most since a 4.6% loss for the week ending March 10, 2023 (see Section 4 below for an analysis of the technical significance of this move and a signal from an indicator).
- Long-duration bonds (TLT) rallied 3.5% on the holiday-shortened week due to rising odds of accelerated interest rate cuts.
- Commodities (DBC) plunged 3.8%. The spot price of crude oil plummeted 8% for the week, marking the largest decline since an 8.8% loss for the week ending October 6, 2023.
- The US dollar index (UUP) fell 0.3% but ended the week off its lows.
- Gold (GLD) fell 0.3% and has been in a rangebound market for about two weeks.
- Since January 3, 2022, bonds (TLT) have been down 26.9%, while gold and large-caps (SPY) have gained 34.9% and 18.1%, respectively.
- For the week, the equally weighted magnificent seven stocks plunged 5.5%. Nvidia’s stock plummeted 13.98%, and Google’s shares dropped 7.6%.
- The technology sector (XLK) fell the most this week, by 7.4%, while the consumer staples sector (XLP) gained 0.6%.
The yield curve un-inversion was short-lived
The yield curve was slightly un-inverted for the last week of August, if we refer to the difference between the 10-year and 2-year yields.
The current inversion has been the longest in recent history. Usually, bear markets have followed after un-inversion because this is when a bull steepener of the yield curve occurs, with short-end rates falling faster than long-end yields. The duration of the inversion coupled with the absence of a recession has puzzled many analysts who look for normality, but it is probably a random variable with a fat tailed distribution. Elevated deficit spending and a new and powerful narrative about artificial intelligence are responsible for the absence of a recession. The economy may experience a soft landing as the yield curve un-inverts in the near future, but a recession is a higher-odds outcome, and investors are beginning to prepare for one.
The large drop in stocks this week was a result of rising expectations about a bear market. It may or may not happen, but often there is a divergence between macroeconomics and investor expectations. In fact, this divergence limits the applicability of macroeconomic analysis near major turning points, and the economy may be at one right now. These facts separate investors into two classes: those who focus on narratives and those who take action to limit risks and protect their capital. There are also many investors who prefer low-cost beta strategies over predictions. See this recent article for more details.
2. Update on market positioning
We use two cross-sectional momentum long-only strategies that generate signals for capital markets and factor ETFs. Year-to-date, both strategies outperform the S&P 500 total return by a wide margin. The equally weighted performance year-to-date is 18.3%.
Last update: Friday, September 6, 2024, after the market close.
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Specific disclaimer: This report includes charts that may reference price levels. If market conditions change the price levels or any analysis based on them, we may not update the charts. All charts in this report are for informational purposes only. See the disclaimer for more information.
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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