Stocks pushed higher this past week with the Dow Jones Industrial Average notching its first weekly gain after two weeks of consolidation. All of the major large cap indexes (Dow Jones Industrial Average, S&P 500, US Total Market Index, NASDAQ Composite) closed at record highs at some point during the week. Despite being historically a soft month for stocks, thus far September has gotten off to a positive start, which bodes well for the balance of this calendar year.
- According to the Bureau of Labor Statistics the U.S. economy added 911,000 fewer jobs over the past twelve months and 1.2 million fewer over the past sixteen months than was previously thought. The revisions are completed annually and are not welcome news given the weak September Nonfarm Payroll Report as well as the increase in Weekly Initial Claims for Unemployment Benefits (see below). Ironically stocks rallied as at this point in the economic cycle “bad news is good news” as it solidifies a cut in interest rate by the Fed at the conclusion of their two-day meeting this coming Wednesday.
- “If the Fed does cut rates next week, it will be just the 9th rate cut since 1994 that occurred ten or less trading days after the S&P 500 hit a 52-week high and the 6th cut that followed a pause between cuts of a least four months. One year after cuts in both scenarios, the S&P 500 was higher every time, with median gains that were greater than the median return for all one-year periods since 1994.” Given the small sample size, we wouldn’t get too excited about this data. However, it also suggests not a lot of downside pressure either, which is always the concern of investors.
- OpenAI CFO Sarah Friar warned that the companies “who will get left behind are not embracing AI fast enough” and that insufficient computing power to meet the demand of AI is the biggest challenge. In our opinion, Artificial Intelligence (AI) will reach its tentacles in all aspects of businesses, increasing productivity and therefore profitability. An adverse result may be a reduction in the need for human labor.
- Mortgage Rates Fall. Recently released data from the Federal Home Loan Mortgage Corporation (FreddieMac) revealed that the average rate on a 15-year mortgage declined ten basis points to 5.50% while the rate on 30-year mortgages fell fifteen basis points to 6.35%. According to Freddie Mac, this represented the “largest drop in the past year. Mortgage rates are headed in the right direction and homebuyers have noticed, as purchase applications reached the highest year-over-year growth rate in more than four years.”
It’s The Economy…”
- The University of Michigan reported that its Preliminary September Reading of Consumer Sentiment fell to 55.4 (-4.8% y/y) from a final August 58.2 and from a preliminary August level of 58.6. The preliminary September expectations component fell to 51.8 (-30.4% y/y) from a final August 55.9 as well as from a preliminary August 57.2. Lastly, the preliminary September current conditions component slid to 61.2 (-3.3% y/y) from a final August 61.7 and from mid-August 60.9. According to the Survey of Consumers Director, Joanne Hsu, “consumer sentiment moved down less than three index points in early September. This month’s easing in economic views was particularly strong among lower- and middle-income consumers.” (Source, Univ of Michigan)
- The Consumer Price Index rose 0.4% during August (2.9% y/y), after edging 0.2% higher during July. The CPI has fallen from a y/y high of 9.1% during June 2022. Energy prices rose 0.7% during August (0.2% y/y) after falling 1.1% in July. Food and beverage prices rose 0.5% (3.2% y/y) during August after remaining unchanged in July. The cost of shelter rose 0.4% during August (3.6% y/y), after rising 0.2% during July. Excluding food and energy, the core CPI rose 0.3%, after rising by 0.3% during July. Over the past year the core CPI has risen 3.1% y/y, well below the September 2022 peak of 6.6%. (Source, U.S. Bureau of Labor Statistics)
- Initial Claims for Unemployment Benefits for the week ended September 6th rose 27,000 to 263,000 from 226,000, which was revised lower by 1,000. The four-week rolling average rose 9,750 to 240,500 from 230,750, which revised 250 lower. Continuing claims for the week-ended August 30th was unchanged at 1,939,000 when compared to the prior week, which was revised 1,000 lower. The continuing claims four-week average fell 750 to 1,945,750 from 1,946,500. (Source, U.S. Department of Labor)
- Prices at the wholesale level as measured by the Producer Price Index slipped 0.1% during August after rising 0.7% in July. Over the past year the PPI has risen 2.6%, down from 3.3% in July and from a peak rate of 11.7% during March 2023. Energy prices fell 0.4% during August (-1.9% y/y) after rising 0.7% in July. Finished food prices rose 0.1% during August (3.5% y/y) after rising 1.4% in July. Ex- food and energy, the core PPI fell 0.1% during August (2.8% y/y), after rising 0.7% in July. Prices for Intermediate Goods rose 0.4% in August (2.6% y/y), after rising 0.7% in June.(Source, U.S. Bureau of Labor Statistics)
Economic Reports scheduled to be released this week include the following – on Tuesday, August Retail Sales, August Industrial Production, August Capacity Utilization and July Business Inventories; on Wednesday, August Housing Starts; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits along with the August Index of Leading Economic Indicators.
Several companies of note are scheduled to report quarterly earnings this week, to include Dave & Buster’s (PLAY), General Mills (GIS), Cracker Barrel (CBRL), Scholastic (SCHL), Darden Restaurants (DRI), Lennar (LEN) and FedEx (FDX).