Stocks were modestly higher on Friday after a rally on Thursday saw the S&P 500 (^GSPC) and Nasdaq (^IXIC) erase losses suffered during this month’s sell-off. These gains have the major indexes on track for their best week of the year.
After rallying more than 2% on Thursday, the Nasdaq Composite (^IXIC) was up less than 0.1% on Friday. The S&P 500 (^GSPC) was just above the flat line while the Dow Jones Industrial Average (^DJI) was up about 0.1%.
A quiet calendar greeted investors on Friday, with the main data release showing consumer sentiment ticked higher in August, rebounding for the first time in five months.
Thursday’s gains were catalyzed by two key readings on the US consumer — monthly retail sales and Walmart’s (WMT) latest earnings report — which showed any recessionary fears triggered by the sharp drop in stocks at the beginning of the month are likely misplaced.
“We’ve seen consistency with the consumer,” Walmart’s CFO told Yahoo Finance.
“If you look at each month of the second quarter, they were all fairly consistent. There was no step-down in July, as some had expected. And that’s generally our outlook for the year.”
Investors have also now pared back some of their more dramatic bets on rate cuts from the Federal Reserve this year.
Data from the CME Group now shows investors placing 66% odds on the Fed cutting rates by 0.25% next month; odds of a 0.50% rate cut now stand at 33%. During the market’s most turbulent moments last week, there was almost a near-certainty that a 0.50% would be warranted.
The next key update from investors on the rates front will come next Friday when Fed Chair Jay Powell is set to speak before the annual Jackson Hole Symposium.
Live5 updates
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All quiet on the data front until the Fed
A busy economic data week played a pivotal role in the stock rebound this week. After fears of recession were rising following a weaker-than-expected jobs report, this week’s data helped calm investors.
The latest data prints have shown inflation continues to fall toward the Fed’s 2% goal while consumer spending holds up and layoffs aren’t ticking higher.
In sum, economists and Wall Street strategists have argued this week’s data dump shows the vaunted soft-landing, where the US economy avoids a sharp economic downturn as inflation retreats to the Fed’s 2% goal, is now firmly back in sight.
“This week’s jam-packed data calendar delivered mostly good news. Inflation was generally tepid, and activity still looks healthy,” Bank of America Securities head of 3conomics Michael Gapen wrote in weekly note to clients on Friday. “The recent data flow is consistent with our soft-landing forecast.”
A quiet week of economic data will bring little to change that narrative next week. But Federal Reserve chair Jerome Powell’s speech at the Jackson Hole Symposium could alter market expectations for the Fed.
“The easiest thing for Chair Powell to do would be to repeat his message from July,” Gapen wrote. “An evolution of the July FOMC language would suggest the committee is “very close” or “close” to the point where easing is likely to occur. A more dovish signal could be a statement that the committee wants to avoid “unexpected weakness” in the labor market, rather than simply responding to it after it occurs.”
As of Friday morning, markets are pricing in a 76% chance the Fed will cut interest rates by 25 basis points by the end of its September meeting. A week ago, markets had priced in a more than 50% chance the Fed would provide a deeper cut and slash rates by 50 basis points.
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Vice President Kamala Harris to detail economic policy in speech Friday
Vice President Kamala Harris is set to lay out her plans for the US economy in a speech slated for Friday afternoon.
Yahoo Finance’s Ben Weschkul breaks down what to expect:
It will be the Democratic nominee’s first extended foray into economic policy since announcing her run for the presidency.
The plan “will address some of the sharpest pain points American families are confronting and bolster their financial security,” the campaign said in a statement.
Her 2:45 pm ET address in Raleigh, NC will likely highlight a critical view of corporate mergers, signal new efforts to drive down healthcare costs, and unveil a push to expand the child tax credit to $6,000 for the first year of a child’s life.
Her new plan also includes a new first-time homebuyer credit of $25,000.
The speech is an an attempt by the campaign to keep its political momentum going with a focus on kitchen table issues and everyday costs after Harris has moved into a seeming tie with former President Donald Trump ahead of next week’s Democratic National Convention in Chicago.
But the speech is also likely to still leave key areas of the potential Harris economic agenda largely undefined on a series of issues ranging from many key tax issues to manufacturing policy to the ballooning national debt.
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Consumer sentiment ticks higher in August, inflation expectations steady
Consumer sentiment rebounded for the first time in five months in August.
The latest University of Michigan consumer sentiment survey released Friday showed sentiment ticked higher in August. The index reading for the month came in at 67.8, up from 66.4 in July and above the 66.9 economists had expected.
Consumer inflation expectations were unchanged for the month, with consumers expecting inflation at 2.9% over the next year and 3% over the next five to 10 years.
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Stocks take a breather at the open
Stocks slipped in early trading on Friday after a rally on Thursday saw the S&P 500 (^GSPC) and Nasdaq (^IXIC) erase losses suffered during this month’s sell-off. These gains have the major indexes on track for their best week of the year.
After rallying more than 2% on Thursday, the Nasdaq Composite (^IXIC) fell about 0.4% at the open. The S&P 500 (^GSPC) slipped 0.2% while the Dow Jones Industrial Average (^DJI) traded on both sides of the flat line.
Information Technology (XLK), which had been the leader since the sell-off on Aug. 5, was one of the worst-performing sectors in the S&P 500 in early trading, falling more than 0.5%.
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Housing starts hit four year low in July
New residential construction pulled back in July as builders continued to feel the effects of high interest rates.
Housing starts fell 6.8% from the previous month to a seasonally adjusted annual pace of 1.238 million units, according to data from the Census Bureau released Friday, marking a four-year low. Single family housing starts dropped 14.1% to a seasonally adjusted annual pace of 851,000.
The data comes as mortgage rates have been on a downward trend in recent weeks but remain high relative to the period immediately following the start of the pandemic, keeping many buyers and sellers on the sidelines.
Meanwhile, housing inventory is also rising.
“The slump in both housing starts and building permits in July, to the lowest levels since the epoch of the pandemic, only partly reflects the temporary impact of Hurricane Beryl,” Paul Ashworth, chief economist at Capital Economics, wrote after the release.
“Accordingly, even though lower interest rates should provide ongoing support to new home sales, the existing oversupply in some regional markets could be a bigger constraint that we previously anticipated,” the economist added.
Friday’s data showed that building permits for single family homes also declined last month, slipping 0.1% month over month to 938,000. Meanwhile, permits for multifamily came in at a rate of 408,000 in July.
In August, homebuilder confidence hit the lowest level since December as high interest rates and record home prices continue to reduce demand for new homes.
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