Dow Jones Industrial 34,837.71 +1.43%, S&P 500 4,515.77 +2.50%
Nasdaq Composite 14,031.81 3.25%, US Ten Year 4.18%, Crude Oil $85.86
The modest recovery in stocks that began at the end of the previous week continued though the week just ended, but all three major indices still ended down for the month. No surprise, August is usually a so-so month for stocks. Now we are entering September, historically the worst month for stocks.
In company action three widely followed technology stocks, Salesforce (CRM), Crowdstrike Holdings (CRWD) and Broadcom (AVGO) influenced the markets this week. They all reported excellent results, beating quarterly expectations for both the top and bottom lines. CRM and CRWD stocks surged, while AVGO fell back due to lowered expectations, but that merely erased a huge three-day run-up that preceded the earnings announcement. All three stocks are up smartly this year, CRM + 64%, CRWD + 56% and AVGO +58%, and remain holdings for growth accounts.
The latest economic data was mixed. Job openings in July were 187,000 versus 170,000 expected, while both June and May were revised downward. Unemployment jumped from 3.5% to 3.8% and the labor participation rate rose. The Fed’s preferred inflation rate, the Core Personal Consumption Expenditures (PCE) index, remains stubbornly high at 4.2%, well above its 2% target. This is no surprise, as consumer services inflation, which comprises 57% of the PCE index, is at 5.6%. Neither too hot nor too cold. So, are we in a “goldilocks” economy, and is the Fed successfully engineering a so-called soft landing?
The Philadelphia Federal Reserve uses a tool called GDPplus, which is a blend of Gross Domestic Product (GDP) and Gross Domestic Income (GDI). Being a blend, it is much smoother than either GDP or GDI and less prone to wild swings. From the chart below(Courtesy Mishtalk.com) GDPplus may be indicating a possible recession, with the indicator nudging against zero on the horizontal axis.
Deep drops in GDPplus have either preceded, or occurred coincidentally, with recessions. It is possible that we already experienced a mild recession earlier in 2023. Indeed, the National Bureau of Economic Research, the agency that provides start and end dates for recessions, has in the past announced recessions several weeks after they had occurred. Much of it will depend on whether the Federal Reserve is at or close to raising short-term interest rates. We should get a glimpse of that during the central bank’s September meeting.
Wishing You a Happy Labor Day Holiday Weekend,