AE Wealth Management: Market Minute 08/02/24 — Markets slump as economic growth concerns rise
Market Minute
August 2, 2024
The U.S. stock market experienced a significant slump on Friday as investor concerns about economic growth were heightened by a cooler-than-expected jobs report. The Dow Jones Industrial Average plunged 610 points, or 1.51%, to around 39,358. The S&P 500 saw a decline of 100 points, or 1.84%, landing at 5,302, while the Nasdaq Composite slumped 417 points, or 2.43%, to 16,582.
For the week, the trend remained downward, with the Dow falling 2.52%, the S&P 500 sliding 2.27% and the tech heavy Nasdaq ending with a 3.43% drop.
Weak July jobs data, the Fed’s decision not to lower rates, and geopolitical tensions have contributed to the downturn. Fed Chairman Jerome Powell’s lukewarm comments on rate cuts further soured the market sentiment. After a low-key first half dominated by a small group of stocks and AI hype, the pressure on the economy and earnings grows with each delay in rate cuts.
This downturn was exacerbated by several key factors:
- Federal Reserve’s Decision: On Wednesday, the Fed decided not to lower rates, a move many analysts viewed as a mistake given the current economic climate.
- Weak Jobs Reports: Both ADP and BLS jobs reports came in significantly below consensus. The unemployment rate has risen to 4.3%, up from below 4.0% as recently as May.
- Weak Manufacturing Data: The ISM manufacturing index signaled a meaningful contraction, adding to economic concerns.
- Geopolitical Tensions: Increasing tensions in the Middle East have added uncertainty to the global economic outlook.
- Political Developments: The “Trump trade” (small caps, energy) has subsided as polls have tightened, raising the potential for a continuation of current policies.
- Market Sentiment: Investors are interpreting the bad news as a signal of a potential recession, rather than expecting the Fed to lower rates and achieve a soft landing.
- Flight to Safety: Yields have moved significantly downward, with the 10-year yield around 3.9%, down from 4.2% last week.
- Increased Volatility: The volatility index (VIX) has doubled, rising to over 24 from 13 in mid-July.
The unexpected jobs report added to existing concerns about the overall health of the economy. Investors are now questioning whether the Federal Reserve might adjust its monetary policy sooner than anticipated to address these economic challenges.
As we move forward, it’s important to maintain a long-term perspective on investing. Short-term market fluctuations are part and parcel of economic cycles. Now may be an excellent time to reassess your goals and ensure that your portfolio aligns with your long-term objectives amidst the shifting economic landscape.
This week’s market activity serves as a reminder that periodic pullbacks are to be expected. Keep focused on your long-term strategy and consult with your advisor to navigate through these volatile periods effectively.
This is provided for informational purposes only. This information is not intended to be used as a sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
This information is provided to you by AE Wealth Management, LLC (AEWM) and AE Financial Services, LLC (AEFS).
AE Financial Services, LLC (AEFS) is a Broker Dealer located in Topeka, Kansas.
AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas.
Registration does not denote any level of skill or qualification.
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