US Markets
Stocks notched modest gains in August, helping investors forget a volatile month of trading, punctuated by upbeat comments by Fed officials about interest rates.
The Dow Jones Industrial Average rose 1.76%, while the S&P 500 Index tacked on 2.28%. The Nasdaq Composite lagged a bit, advancing 0.65%.1
An Unsettling Jobs Report
August began with a disappointing employment report showing July job growth slowed much more than expected, and unemployment moved to 4.3%—the highest rate since October 2021.
On the same day, Japan’s Nikkei dropped quickly as investors cashed out of a popular trading strategy called a “carry trade,” which briefly pressured global financial markets.2,3
Progress on Inflation
Almost as fast as markets fell, they bounced back, however.
News that initial jobless claims fell more than expected—a positive sign for the labor markets—quieted some of the festering recession talk.
Also, there was growing speculation that the July jobs report was more of an outlier that was perhaps influenced more than expected by Hurricane Beryl, which arrived in the U.S. in late June.4
Fresh economic data also bolstered investor confidence. The Producer Price Index and the Consumer Price Index rose less than expected in July, reinforcing the “cooling inflation” narrative. The July retail sales report was stronger than expected, which helped boost sentiment.5,6,7
Fed Officials Taking a Stand
Despite mixed signals earlier this year, Fed officials now appear coordinated with their messaging about interest rates.
Constructive comments in the July Federal Open Market Committee meeting minutes showed policymakers were open to cutting short-term interest rates.
A short time later, Fed Chair Jerome Powell, in his Jackson Hole symposium speech, indicated the time had come to adjust policy.
And throughout the month, other Fed officials made speeches that suggested a rate change may be sooner rather than later.8
What Investors May Be Talking About in September
Expect attention to shift to the Fed’s next two-day meeting, which is scheduled to start on September 17.
Investors anticipate the Fed will follow up on its dovish talk in August with a rate adjustment at the conclusion of the Federal Open Market Committee (FOMC) meeting.10
Some still believe that the Fed may be reluctant to make any changes this close to the election, but most market observers seemed to dismiss that idea.10
“The time has come for policy to adjust,” Powell told a gathering of global central bankers in August at the Fed’s annual Jackson Hole, Wyoming, conference. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
World Markets
The MSCI-EAFE Index gained 3.02% in August as markets rallied globally and central banks lowered rates.11
European stocks rallied, with Spain (+3.04%), Italy (+4.61%), Germany (+2.15%), France (+1.32%) and the United Kingdom (+1.13%) making solid advances.12
Pacific Rim markets were mixed. While China’s Hang Seng index picked up 3.72%, Japan’s Nikkei lost 1.16%. Japan’s Nikkei had an exceptionally volatile month as investors grappled with “carry trade” transactions, which is when speculators borrow money in a country with low interest rates and invest in currencies with a higher interest rate.13
The Fed
While there was no formal policy meeting last month, Chair Powell’s speech at the Fed’s annual symposium in August provided some of the strongest hints yet on interest rates, saying, “The time has come for policy to adjust.”
Investors responded favorably, but many are still wondering about the Fed’s approach since Powell added that “the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”23
The next scheduled two-day Fed meeting starts on September 17. It’s been 4.5 years—at the start of the pandemic—since the Fed last cut interest rates.24
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1. WSJ.com, August 31, 2024
2. CNBC.com, August 2, 2024
3. CNBC.com, August 5, 2024
4. WSJ.com, August 9, 2023
5. WSJ.com, August 13, 2024
6. WSJ.com, August 14, 2024
7. WSJ.com, August 15, 2024
8. Marketwatch.com, August 22, 2024
9. Sectorspdrs.com, July 31, 2024
10. CMEGroup.com, September 3, 2024
11. MSCI.com, August 31, 2024
12. MSCI.com, August 31, 2024
13. MSCI.com, August 31, 2024
14. WSJ.com, August 29, 2024
15. WSJ.com, August 2, 2024
16. CNBC.com, August 15, 2024
17. KPMG.com, August 15, 2024
18. WSJ.com, August 16, 2024
19. Reuters.com, August 22, 2024
20. Realtor.com, August 23, 2024
21. WSJ.com, August 14, 2024
22. ABA Banking Journal, August 25, 2024
23. WSJ.com, August 23, 2024
24. Forbes.com, May 20, 2024
25. BestColleges.com, February 7, 2024
26. Research.CollegeBoard.org, 2023
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