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Stock investors continue to find themselves on an increasingly wild ride. Wall Street bulls are cautiously optimistic that the recent market pullback is over and that stock prices will continue to make a gradual but sustainable recovery. Historically, stock bulls have struggled to make gains during August. Going back to 1950, it’s been the second-worst month for stocks with average returns for the S&P 500 during the month a mere +0.01%. The average decline over the same period is just over -3%, something that seasoned traders chalk up to low trading volumes during August that can supercharge volatility and make markets susceptible to extreme moves.
For what it’s worth, the CBOE Volatility Index, aka Wall Street’s “Fear Gauge,” spiked above 65.00 during Monday’s selloff, but pulled back to 27.71 yesterday. However, market patterns tend to be a bit different in Presidential election years. Dating back to 1950, the S&P 500 has actually recorded an average monthly gain of +1.3% in August during election years. Election years are normally positive for stocks with the S&P 500 gaining in 83% of those years, although average returns are a bit smaller (+11.3% vs +11.6%).
Negative returns during election years are mostly related to recessions and financial market crises. While past performance can’t predict the future and this may be somewhat of an unprecedented election cycle, these trends have held for over 70 years so they are worth paying attention to.
Bulls still see room for higher stock prices ahead, especially with the Fed set to cut rates in September. Notably, some think we will need to get past the chaos of the November election before making any real headway.
Bears continue to argue that much of the gains that stocks have already made this year are based on a lot of “hopes and dreams” that have yet to pan out, including the Federal Reserve successfully navigating the US economy to a “soft landing” as it prepares to cut interest rates, and companies delivering profits to match the massive investments being made in AI technology.
Most bears also still think the US economy is headed toward recession and that Fed rate cuts in September will be too late to prevent damage to the labor market and more fallout in the stock market. The only economic data today is Consumer Credit.
Earnings today include CVS, Disney, Hilton Worldwide, Monster Beverage, Novo Nordisk, Occidental Petroleum, Shopify, and Warner Bros. Discovery.
Bulls argue that the Fed clearly has a ton of room to keep cutting rates if need be, and the top US companies are not only flush with cash but, as I've mentioned, are also showing record-setting profit margins. Certainly, that could change, and that's part of the bear's argument that profit margins are going to dramatically shrink in the coming months.
For what it's worth, Fed Fund Futures is showing +70% odds of a -50 basis point rate cut by the Fed at the September 17-18 FOMC meeting.
For that to happen, the trade must believe we are going to get some shaky economic data and perhaps another sizable break in the market.
Millions of Americans Are Working a Second Job to Provide for Older Family Members: An estimated 29 million workers, from senior managers to retail clerks, work while also caring for an adult family member, according to research by AARP and the National Alliance for Caregiving. Six out of 10 are working full time, compared with 46% in 2009. After working 40 hours, many spend about 20 hours providing unpaid care, according to the research. The double shift can come at a career cost. Caregivers who are also working full-t ime report turning down promotions or seeking less-demanding assignments. Some switch companies or say they’ve had to choose care duties over their careers. Care demands on workers are growing because people are living longer with chronic illness. A simple fall or unexpected cancer diagnosis can lead to hospital stays, months of treatment and worry throughout. Plus, a large share of people want to age at home but need lots of help from family members to do so. About half of employees who left a job because of caregiving were senior executives and leaders, according to a 2024 Harvard Business School report. Companies, which have long offered maternity and paternity benefits to attract and retain workers, are beginning to offer support for those caring for older family members. About half of employers said senior benefits were a priority this year, up from 43% in 2023, according to a survey by Care.com, an online family-care platform. Read more about the costs of caring for family members. Source WSJ
Some 40% of This Year's High School Grads Don't Plan to Enroll in College This Fall: Chipotle, Lowe’s and Walgreens are the best big companies for high school graduates who don't plan to continue their education right away, to get hired and promoted quickly, according to a new analysis by the American Opportunity Index. Some want to bulk up their savings before going back to school, and others are weighing whether they want to pursue college at all. But while lists and rankings of top jobs for college graduates abound, there’s little data on the best moves for high school graduates, says Rajiv Chandrasekaran, a managing director at the Schultz Family Foundation, one of the groups behind the index. Where they choose to get that first job matters, as the top 50 best large firms for high school graduates are as much as 4.3 times likelier to hire people out of high school than America’s other big companies, the index found. Workers with high school degrees are also as much as 2.5 times more likely to get promoted, defined as a role change with a pay bump of 10% or more, at these companies. Source Axios |
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Household Debt Grows at a Slower Pace: Household debt rose by just over $100 billion in the second quarter, moderating slightly from the first quarter’s increase. But consumers are becoming delinquent at a faster rate—indicating that they’re feeling the sting from tighter economic conditions. Total household debt increased by $109 billion, or 0.6%, in the second quarter of 2024, from the first three months of the year, according to the New York Federal Reserve’s Quarterly Report on Household Debt and Credit, released Tuesday. While that’s a notable increase, the 0.6% pace is a slowdown from the first quarter’s 1.1% rise. New York Fed officials attribute the tempering to lower growth in mortgage balances, the largest component of U.S. debt—and specifically, a “substantial slowdown” in mortgage originations, or the appearance of new mortgages on credit reports, either from purchasing or refinancing. Mortgage balances rose by $77 billion in the second quarter to a total of $12.52 trillion by the end of June. New mortgages rose about $374 billion in the quarter, compared with an average increase of about $1 trillion per quarter between 2021 and 2022, researchers wrote in a separate paper released Tuesday. Another source of debt growth this quarter were credit card and auto loans. Credit-card balances rose by $27 billion to $1.14 trillion from the first quarter, while auto loans saw a $10 billion uptick to $1.63 trillion. Overall delinquencies were unchanged from the previous quarter at 3.2% and remained well below prepandemic levels. Source Barrons
Left Behind in the Retail Real-Estate Comeback: Department Stores: Department stores are bleeding customers, and landlords no longer view them as magnets for shoppers. Discounters are underpricing them. Specialty stores are outmaneuvering them. And luxury brands are sometimes bypassing department stores to open their own shops. The surviving operators are making big moves in hopes of turning things around. Saks Fifth Avenue’s parent company is buying rival Neiman Marcus. Nordstrom executives are exploring taking the company private. Macy’s new chief executive is closing stores while trying to improve the shopping experience at its leaner fleet. But department stores’ long-term decline will be difficult to reverse. Their sales peaked just before the turn of the century and have been on a downward trajectory ever since, according to U.S. census data. Department-store sales bounced back somewhat in 2021 and 2022 after plunging at the start of the pandemic, but never recovered to 2019 levels. The sector’s sales fell last year and were basically flat in the first five months of 2024. Major department stores now occupy less than half of all anchor spaces at enclosed shopping malls, real-estate firm Green Street said. There are roughly 500 vacant department-store spaces nationwide, with more closures on the way as Macy’s shutters 150 underperforming stores over the next three years. Source WSJ
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Disney Raising Subscription Prices: Subscription prices for Disney+, Hulu and ESPN+ plans will be slightly increased later this year, Disney announced Tuesday, as the company appears to push customers toward bundled streaming plans. The price of Disney+’s ad-free and ad-supported plans will each be increased by $2 to $15.99 per month and $9.99 per month, respectively, starting on Oct. 17 for customers in the U.S., Disney said. Hulu, which Disney also owns, will raise the price of its ad-supported tier by $2 to $9.99 per month and its ad-free plan by $1 to $18.99 per month, while the platform’s bundle with live, linear TV will be increased by $6 to $82.99 per month for the ad-supported plan and by $6 to $95.99 for the ad-free plan. A bundle of Disney+ and Hulu will be increased by $1 to $10.99 per month for the ad-supported tier, though Disney won’t increase the bundle’s ad-free price from $19.99 per month. Source Forbes
Airbnb Warns of Moderating Demand as Earnings Miss: Airbnb shares were falling in after-hours trading after the short-term rental company missed expectations for second quarter earnings and warned of moderating demand in the current quarter. Revenue for the quarter ending in June was $2.75 billion, up 10.6% from the same period in 2023 and above analyst estimates of $2.74 billion and the company’s guidance of $2.68 billion to $2.74 billion. But earnings of 86 cents a share were below the estimate for 91 cents a share and down from 98 cents a share a year ago. Its room nights booked fell short of expectations at 125.1 million, versus the 126.6 million anticipated. Adding to the disappointment, it warned of a “moderation” in year-over-year growth of nights booked in the third quarter relative to the second quarter. It also noted “signs of slowing demand from U.S. guests.” Source Barrons
Why a Fed Rate Cut Won’t Make Houses More Affordable: We’re in some weird times. On Friday, it was a weaker-than-expected jobs report, and on Monday, there was a global stock market meltdown. The one bright spot is that weekly mortgage rates fell to their lowest level since February, so that’s good news for potential homebuyers or those who have been waiting to refinance or sell. They could even fall further because an interest rate cut from the Federal Reserve in September is all but guaranteed. Even so, it won’t fix the country’s housing crisis. In a recently published analysis, titled “A September rate cut is not enough to relieve the housing affordability crisis,” Moody’s economist Nick Villa explained the bond market has already priced in a rate cut, whether it be half a point or a quarter. The average interest rate on a 30-year fixed mortgage is correlated to yields on 10-year Treasury bonds, which have fallen to roughly 3.7%, the lowest level since May 2023. “Rate cuts will certainly help, but based on where the median existing home price is as of June 2024, a 25- to 50-bps reduction in the 30-year fixed mortgage rate would not be enough to turn the tables such that renting becomes more expensive again,” said Villa. Source Fortune
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