August Finished Strong

An abrupt decline in the first three trading days of August rattled investors.  The market dropped over 5% in what appeared to be a reaction to a slowing economy.  The unemployment rate rose in July and the jobs report showed fewer jobs created.  

On August 21st the Department of Labor released a revised jobs report for the twelve months ending March 2024.  The original estimate totaled 2.9 million jobs.  The revised number declined by 818,000 to just over 2 million.  It was the biggest correction since 2009.  This is an indication that the jobs market is weaker than previously reported.  

The Federal Reserve Board members were meeting at their annual conference in Jackson Hole, Wyoming when the correction was released.   There were already signals coming from the committee that it may be time for a change in monetary policy.  This correction, with significantly fewer new jobs than previously reported, added to that expectation.  When the Fed Chairman spoke on the 23rd he confirmed that the Board is now focusing more on jobs and less on inflation, and believes it is time for a reversal in policy.  After two years of rising interest rates, the Board is likely to vote for a rate cut when they next meet in mid-September.  The only question that remains is how much.  Most analysts expect a quarter point cut with perhaps as many as three more by the end of the year.  

The market appears to view an interest rate cut in September as positive.  Prices rose after the initial drop earlier in the month and continued to increase steadily.  The month ended slightly higher than the close on July 31.  

Market breadth is a technical analysis indicator that gauges the number of stocks increasing in price against the number putting in lower prices.  In August more individual stocks reached all-time highs.  This is a healthier market than one dominated by a few large tech stocks.  We are observing increased breadth in cap-size as well as across industry sectors.   This is a bullish signal going into the end of the year.  

The market is not without some headwinds.  We are in a seasonally weak time of the year.  The market often struggles in September and October.  Now that Labor Day is behind us, the presidential election becomes more the focus, and in tight elections the market is often volatile.    Remember that the market does not like uncertainty and responds with increased volatility.  

Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our views at the time of this writing, and it is subject to change. It is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us.