WS Rebel August 16, 2024

Author

Amber Trusik
August 19, 2024

Market Overview

Dow Jones Industrial Average (DJIA)
The Dow posted a solid +2.70% increase week-over-week, demonstrating continued strength. The index remains above its key moving averages (9, 50, and 200 SMA) and 21 EMA, which is an encouraging sign for technical traders. Notably, the 9 SMA crossed above the 50 SMA, indicating a bullish trend. The MACD (Moving Average Convergence Divergence) also signaled a positive momentum shift, while the RSI (Relative Strength Index) is approaching 60, suggesting there may still be room for upward movement before the market becomes overbought. However, trading volume in the DIA ETF on Friday was lighter than usual, which could imply some caution from investors.

NASDAQ
The NASDAQ outpaced other indices with a +5.28% gain week-over-week. Like the Dow, the NASDAQ is sitting above its 9 and 200 SMAs, along with the 21 EMA. It closed slightly above its 50 SMA last Friday, which may encourage further upward movement. The MACD also flipped to the positive side, and the RSI is approaching 60, much like the Dow. Despite this momentum, the QQQ ETF's volume on Friday was notably lower, which could be a signal that investors are waiting for more conviction before diving deeper.

S&P 500
The S&P 500 also saw strong gains of +3.72% week-over-week. With the index trading above its 9, 50, 200 SMAs, and 21 EMA, technical indicators are bullish. The MACD and RSI show similar patterns to the Dow and NASDAQ, both suggesting continued strength. However, like the other indices, the SPY ETF’s volume was below its average on Friday, hinting at cautious optimism among traders.

Volatility Index (VIX)
The VIX is sitting at a relatively low level of 14.80, indicating that the market is not pricing in significant short-term volatility. This reflects the general market confidence, but investors should remain alert, as low volatility can sometimes precede sharp moves.

Interest Rates & Economic Indicators

Federal Funds Rate & SOFR
The Federal Funds Rate is currently 5.33%, with the SOFR (Secured Overnight Financing Rate) close behind at 5.32%. With interest rates remaining elevated, the market is closely watching the Fed’s next move. The ongoing speculation of potential rate cuts as early as next month is a critical narrative for investors.

TRIN (Arms Index)
The TRIN index closed at 0.82, suggesting buying pressure is still present, but not at extreme levels. This indicates a balanced market sentiment, with neither buyers nor sellers dominating.

Earnings Reports

Home Depot (HD)
Home Depot reported revenue of $43.18 billion, exceeding analyst forecasts. Similarly, EPS came in at $4.67, beating expectations. While these results are strong, a 3.3% decline in comparable sales and lower growth guidance raised concerns. Despite the positive earnings surprise, analysts remain cautious about the outlook for the remainder of the year.

Walmart (WMT)
Walmart reported revenue of $166.34 billion, slightly missing estimates. However, EPS of $0.67 beat expectations. The company’s performance in grocery and health segments remains robust, and interestingly, wealthier customers are shifting their shopping habits to Walmart for cost savings. Nonetheless, concerns linger around margin pressures due to increased labor costs and price investments, which could weigh on future profitability.

Alibaba (BABA)
Alibaba posted revenue of $33.46 billion, missing forecasts, but its EPS of $2.26 came in ahead of expectations. Strong performances in e-commerce and cloud computing helped drive the results. However, regulatory risks in China and slowing growth in smaller business segments continue to be a concern for investors.

Deere & Company (DE)
Deere impressed with revenue of $11.39 billion and an EPS of $6.29, both beating expectations. The company benefited from strong demand for agricultural equipment. However, analysts are wary about the potential impact of rising interest rates on farmers’ ability to finance new equipment purchases.

Economic Data Highlights

  • Core Producer Price Index (PPI): Core PPI remained flat in July, below the expected 0.2% increase. On an annual basis, core producer inflation slowed to 2.4%, down from 3% in June. This cooling inflation is a positive signal for those hoping the Fed will ease its rate hiking cycle soon.

  • Core Consumer Price Index (CPI): Core CPI rose by 0.2% in July, matching market expectations, with shelter and transportation services seeing increases. Annual core CPI stands at 3.2%, the lowest since April 2021, further signaling cooling inflation.

  • Retail Sales: Retail sales surged by 1% in July, marking the biggest jump since January 2023. This was driven by a sharp rise in auto sales and steady gains across multiple sectors. These strong numbers suggest that consumer spending remains resilient despite high interest rates.

  • Building Permits: Building permits fell by 4% in July, reaching the lowest level in four years. This decline, particularly in multi-family units, reflects a cooling housing market as higher rates continue to bite.

  • Consumer Sentiment: The University of Michigan's consumer sentiment index rose to 67.8 in August, marking the first increase in five months. Although current conditions saw a slight dip, expectations for the future improved.

Mortgage Market Insights

  • 30-Year Fixed-Rate Mortgages: The average interest rate for a 30-year fixed-rate mortgage fell slightly to 6.54%, a new low since May 2023. Over the last five weeks, rates have declined by 46 basis points, reflecting lower Treasury yields and expectations of a Fed rate cut.

  • Delinquency Rates: The mortgage delinquency rate increased to 3.97% in Q2 2024, continuing its upward trend from earlier in the year. However, the rate of new foreclosure actions dropped slightly, indicating some stability.

Upcoming Earnings

Looking ahead, keep an eye on Lowe’s (reporting on Tuesday) and Target (reporting on Wednesday) as key retail players that could further shape market sentiment.

Conclusion

The overall market continues to show strength, bolstered by positive earnings results, cooling inflation data, and resilient consumer spending. However, caution is warranted as trading volumes remain light, and economic uncertainties persist, particularly around interest rates and housing.

Stay informed and watch for any shifts in these key indicators as we move further into August.

Sources:

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