​The Markets
 
The near future is more predictable than the distant future.
 
Last year, the St. Louis Federal Reserve explored the accuracy of recession forecasts. They found that short-term predictions about whether there would be a recession in the subsequent quarter were fairly accurate. However, projections for economic growth a year ahead were far less accurate. The researchers concluded, “Even though forecasts can help, we must live with significant uncertainty about future economic conditions.”
 
Investors experienced some of that uncertainty last week as economic data created confusion about the state of the economy. The Department of Labor released its preliminary revision of the employment report, which showed the number of jobs created from March 2023 to March 2024 was significantly lower than previously thought.
 
“The new estimates suggest monthly job growth of about 174,000, instead of the roughly 240,000 previously understood…At the end of the day, the revisions imply that the total number of jobs in the U.S. is just 0.5 [percent] smaller than previously thought,” reported Natalie Sherman of BBC News. She cautioned that the preliminary revision will be adjusted again and that, “Over the last four years, the final estimates of job growth have ended up higher than indicated in August.”
 
Other figures released last week weren’t particularly helpful. In August, manufacturing data was softer than expected. However, sales of existing homes rose in July as supply increased and interest rates fell, reported Seana Smith and Madison Mills of Yahoo! Finance.
 
The Economist also weighed in on the state of the U.S. economy last week. It asked whether America was already in a recession as some rules of thumb have suggested. It concluded:
 
“Recession rules are based on the premise that once news gets bad enough, it will worsen further. Historically, that has been a decent bet: unemployment shoots up quickly and then falls slowly; central banks tend to raise interest rates until something breaks. Yet today the Federal Reserve has room to ease and, given the unusual labor-market recovery, some bumpiness does not spell disaster. Although America’s gangbusters expansion is calming, a gradual slowdown is not a crash—no matter what the rules say.”
 
On Friday, investors were reassured by Federal Reserve Chair Jerome Powell who indicated he is confident “inflation is on a sustainable path back to 2 percent,” and “the time has come for policy to adjust.” Many market watchers interpreted that to mean a rate cut is ahead in September. Major U.S. stock indices finished the week higher, and yields on most maturities of U.S. Treasuries moved lower.

​The Markets
 
The best week of the year?
 
After two weeks of slow and jolting market performance, a bounty of positive news calmed investors and lifted stock markets higher last week.
 
“Investors seem to have come to the realization that while the economy may be in fact slowing, the Federal Reserve is going to take action to address that by cutting interest rates on Sept. 18…with a September rate cut a near certainty, the mood in the market has turned on a dime,” reported Paul R. La Monica of Barron’s.
 
Here’s what happened:
 
Inflation continued to move lower. In July, prices rose 2.9 percent year to year, according to the latest Consumer Price Index report. That was an improvement on June’s 3.0 percent increase. The price of gasoline, new and used vehicles, and medical care moved lower, while the cost of shelter, motor vehicle insurance and recreation moved higher.
 
“It was the first time that the annual pace of inflation was below 3 [percent] since spring of 2021. Even though June’s inflation reading was slightly better, the pricing data from last month will likely help convince Fed officials to cut interest rates by at least a quarter of a percentage point at their next policy meeting in September,” reported Megan Leonhardt of Barron’s.
 
Consumer spending remained strong. Consumer spending is the engine that drives the American economy. After slowing (down 0.2 percent) in June, retail sales accelerated (up 1.0 percent) in July, according to the U.S. Commerce Department’s Advance Monthly Sales for Retail and Food Services.
 
“The retail sales numbers were a blowout versus consensus [expectations], but more importantly it should lay to rest (at least for the moment) all of the ‘doom and gloom’ that was expressed at the beginning of this month,” said a source cited by Rita Nazareth of Bloomberg.
 
Consumer sentiment brightened. In August, for the first time in five months, consumer sentiment improved, according to the University of Michigan’s Consumer Sentiment Survey. Joanne Hsu, the Survey of Consumers Director, wrote:
 
“Overall, expectations strengthened for both personal finances and the five-year economic outlook, which reached its highest reading in four months, consistent with the fact that election developments can influence future expectations but are unlikely to alter current assessments. Survey responses generally incorporate who, at the moment, consumers expect the next president will be. Some consumers note that if their election expectations do not come to pass, their expected trajectory of the economy would be entirely different. Hence, consumer expectations are subject to change as the presidential campaign comes into greater focus, even as consumers expect that inflation—still their top concern—will continue stabilizing.”
 
 
Major U.S. stock indices finished the week higher. The yield on longer-maturities of U.S. Treasuries moved higher over the week.

​The Markets
 
Markets were gripped by August jitters.
 
Last week, financial markets were volatile. The CBOE Volatility Index (VIX), which is known as Wall Street’s fear gauge, rose to the highest level in four years before cooling down. “While spikes in the VIX often coincide with deep market sell-offs, they can also be short-lived and precede a rebound for stocks,” reported Jesse Pound of CNBC.
 
Investor uncertainty contributed to market fluctuations last week. There were many reasons for the uncertainty. For example, some investors:
 
Were unsettled by economic data. Markets stuttered after a weaker-than-expected jobs report. Some investors panicked, believing the United States might be headed for a recession rather than a soft landing.
 
“A slowing economy could create challenges for equities to achieve the kind of earnings growth that analysts were penciling in for the quarters ahead,” noted a source cited by Connor Smith of Barron’s.
 
On Thursday, investors regained some confidence after data showed the number of people filing for unemployment claims was lower than expected. The information suggested the labor market remained solid. The subsequent rally was unexpected because jobless claims don’t normally move the market, reported Barron’s.
 
Concerned about geopolitical risks. Recently, the United States, the United Kingdom, Australia, France, Canada, South Korea, Saudi Arabia, Japan, Turkey and Jordan all warned their citizens to leave Lebanon as quickly as possible on fears that hostilities in the Middle East may escalate, reported Tom Bennett and Hugo Bachega of the BBC.
 
“Iran, Israel and Hezbollah all have the capabilities to continue to attack each other without triggering physical supply cuts in energy or blocking global shipping. Those are the kinds of effects that would trigger a major market reaction. Though a persistent danger is that, in the fog of war, one party or other goes too far or misreads its adversaries’ intent. Events can quickly spiral out of control,” reported Matt Peterson in Barron’s.
 
May have been less experienced. It’s summertime and people—including money managers and traders—are vacationing. The Economist explained,
 
“Spare a thought, then, for the 20-somethings left to run the northern hemisphere’s trading desks over the next few weeks, while their bosses doze on a beach. Possibly for this reason, markets are often more jittery than usual during the summer months. Last year, for example, it was in August that American share prices began their final protracted fall before a storming bull run that took them to new all-time highs. That may be down to liquidity, which…tends to be slightly thinner during the holiday season than in the rest of the year. It may also be that the lack of veterans on banks’ trading floors allows panic to set in more easily. Prices can swing a lot further before someone musters the courage to push back.”
 
Despite sharp swings higher and lower, major U.S. stock indices finished the week close to where they started it. The yield on the benchmark 10-year U.S. Treasury finished the week higher.

The Markets
 
Stock markets swelled and dropped like waves at the Olympic surfing competition in Tahiti.  
 
It is often said that markets hate uncertainty. There was a lot of uncertainty last week, and it showed. “The technology-heavy Nasdaq 100 Index soared 3 [percent] on Wednesday and then retreated almost that much on Thursday, before paring the decline at the close, for its biggest up-to-down rotation since May 2022. The S&P 500 Index sank 1.4 [percent], just one day after rallying 1.6 [percent],” reported Alexandra Semenova, Esha Dey, Carmen Reinicke, and Natalia Kniazhevich of Bloomberg. 
 
High levels of market volatility reflect high levels of uncertainty. Here are three issues that have been top-of-mind for investors:
 
1.  Will the United States experience a soft landing or dip into a recession? Last week, investors became concerned that the U.S. economy may be slowing faster than anticipated. First, a key gauge showed that U.S. manufacturing activity slowed in July, reported Lucia Mutikani of Reuters. Then, on Friday, the U.S. unemployment rate rose to 4.3 percent as employers added fewer new jobs than economists had anticipated.
 
Investors were in a tizzy after seeing weaker-than-expected data. Expectations about the magnitude of a possible Federal Reserve rate cut in September changed—and then changed again. On Friday, the CME FedWatch Tool registered a 74 percent probability of a half-percentage-point rate cut at the Fed’s September meeting, suggesting that the market thought the Fed was likely to begin easing rates too late and would have to lower aggressively. Markets took some calming breaths and, on Saturday, expectations had reversed. There was a 22 percent probability of a half-point cut in September and a 78 percent chance of a quarter-point drop.
 
2.  Will geopolitical issues escalate? There is a lot happening around the world that could affect financial markets. One concern is ongoing tensions in relations between the United States and China. In addition to tariffs and trade issues, there are allegations that China is providing support for Russian war efforts in Ukraine, and concerns about a possible conflict over Taiwan. Energy security also is a risk as wars in Ukraine and the Middle East have disrupted energy supplies in some regions of the world, according to to S&P Global and David McHugh and Matthew Daly of AP News.
 
3.  Who will win the United States election?There has been—and will continue to be—a lot of speculation about the outcome of the U.S. election and its potential effect on the economy and markets. The emotion that accompanies elections can make it difficult to remember that financial markets are generally efficient and adjust to changing risks. While election sentiment may sway stock markets over the shorter term, other factors—valuations, earnings, and the business cycle—also are important,” reported Karishma Vanjani of Barron’s.
​ 
Last week, major U.S. stock indices moved lower with the Nasdaq Composite Index dropping into correction territory as it fell by about 10 percent. The U.S. Treasury market rallied as the yield on the benchmark 10-year Treasury fell to its lowest level since last December, reported Pia Singh and Hakyung Kim of CNBC.