WS Rebel Recap: August 2, 2024

Economic Data and Market Highlights

Federal Reserve Bank of Dallas

The general business activity index for manufacturing in Texas dropped to -17.5 in July 2024, down from -15.1 in June. This marks over two consecutive years of contraction. Key points include:

• Production: Fell to -1.3 from 0.7 in June.

• New Orders: Sharp decline to -12.8 from -1.3.

• Shipments: Dropped significantly to -16.3 from 2.8.

• Unfilled Orders: Decreased to -26.6 from -4.7.

• Wages: Continued growth at 21.2, slightly down from 24.3.

• Employment: Rebounded to 7.1 from -2.9.

• Raw Material Costs: Increased to 23.1 from 21.5.

• Prices Charged: Grew slightly to 3.4 from 14.4.

Source: Federal Reserve Bank of Dallas

JOLTS Job Data

Job openings remained steady at 8.184 million in June 2024, a slight drop from May's 8.23 million but above forecasts of 8 million. Key changes include:

• Increases: Accommodation and food services (+120K), state and local government (+94K).

• Decreases: Durable goods manufacturing (-88K), federal government (-62K).

• Total Hires: Slightly changed at 5.3 million.

• Total Separations: Slightly changed at 5.1 million.

• Job Quits: Decreased to 3.282 million, the lowest since November 2020.

Source: Bureau of Labor Statistics

Mortgage Data

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances stayed at 6.82% for the week ending July 26th, 2024. Other rates include:

• Jumbo Loans: Decreased to 7.07% from 7.09%.

• FHA-backed 30-Year Mortgage: Fell to 6.69% from 6.71%.

Source: Mortgage Bankers Association

Chicago PMI

The Chicago Business Barometer (Chicago PMI) fell to 45.3 in July 2024 from 47.4 in June, still indicating contraction in economic activity:

• Subcomponents: Production, new orders, order backlogs, and employment declined, while supplier deliveries improved.

• Prices Paid: Eased to the lowest level since June 2023.

Source: Chicago PMI

Federal Reserve Decision

The Federal Reserve kept the federal funds rate at 5.25%-5.50% in July 2024, the highest level in 23 years. Key points from the Fed:

• Inflation: Progressing towards 2% but still elevated.

• Economic Activity: Continues to expand solidly.

• Job Market: Job gains have moderated, and unemployment remains low.

Chair Powell mentioned a potential rate cut in September, contingent on inflation trends.

Source: Federal Reserve

Key Points from Jerome Powell's Speech

Interest Rate Decision

• Current Rate: The Federal Reserve maintained the federal funds rate at 5.25%-5.50%.

• Duration: This marks the 8th consecutive meeting with rates held at this 23-year high.

Economic Conditions

• Inflation: Progress has been made towards the 2% inflation target, but it remains somewhat elevated.

• Economic Activity: Indicators suggest that economic activity continues to expand at a solid pace.

• Job Market:

  • Job gains have moderated.

  • Unemployment rate has moved up but remains low.

Factors for Future Rate Cuts

Jerome Powell highlighted several economic indicators that the Federal Reserve will monitor to determine the appropriateness of cutting interest rates in September:

1. Inflation Trends:

   • Continuous decline in inflation rates.

   • Greater confidence that inflation is moving sustainably toward the 2% target.

2. Economic Growth:

   • Stability and strength in overall economic activity.

   • Consistent expansion at a solid pace.

3. Labor Market:

   • Further moderation in job gains.

   • Stability in the unemployment rate.

4. Financial Conditions:

   • Monitoring of broader financial conditions to ensure they support sustainable economic growth.

   • Assessing the impact of current interest rates on borrowing and investment.

Possible Scenarios

• September Rate Cut: Powell mentioned that a rate cut in September could be on the table if inflation aligns with expectations.

• Flexibility: He noted that there could be scenarios where the Fed might cut rates several times this year or maintain current rates, depending on economic conditions.

Balance of Risks

• The Fed judges that the risks to achieving its employment and inflation goals are moving into better balance, which informs their cautious approach to potential rate cuts.

Jobless Claims

Unemployment claims rose by 14,000 to 249,000 for the week ending July 27th, nearing a yearly high. Key indicators:

• Outstanding Claims: Increased by 33,000 to 1,877,000 for the week ending July 20th.

• Four-week Average: Increased by 2,500 to 238,000.

Source: Department of Labor

ISM Manufacturing Data

The ISM Manufacturing PMI fell to 46.6 in July 2024 from 48.5 in June, indicating the sharpest contraction since November 2023:

• New Orders: Declined to 47.4 from 49.3.

• Production: Dropped to 45.9 from 48.5.

• Employment: Fell for the second consecutive month to 43.4.

• Prices: Increased slightly to 52.9 from 52.1.

Source: ISM

Non-Farm Payrolls

The US economy added 114K jobs in July 2024, significantly below June's 179K and forecasts of 175K, signaling a cooling labor market:

• Gains: Health care (+55K), construction (+25K), transportation and warehousing (+14K), social assistance (+9K), government (+17K).

• Losses: Information sector (-20K).

Source: Bureau of Labor Statistics

Unemployment Rate

The unemployment rate rose to 4.3% in July 2024 from 4.1%, the highest since October 2021. The labor force participation rate edged up to 62.7%.

Source: Bureau of Labor Statistics

Stock Market Overview (July 26 - August 2, 2024)

Major Indices Performance

• S&P 500

  • July 26, 2024: Closed at 4,490.57

  • August 2, 2024: Closed at 4,478.73

  • Change: -0.26%

• NASDAQ

  • July 26, 2024: Closed at 14,853.19

  • August 2, 2024: Closed at 14,828.12

  • Change: -0.17%

• Dow Jones Industrial Average

  • July 26, 2024: Closed at 35,315.46

  • August 2, 2024: Closed at 35,282.52

  • Change: -0.09%

Volatility Index (VIX)

• July 26, 2024

  • Open: 17.50

  • Close: 17.23

• August 2, 2024

  • Open: 17.23

  • Close: 16.45

Earnings Reports

McDonald's (July 29, 2024)

• EPS: $2.97 (missed estimate of $3.07).

• Revenue: $6.49 billion (below expected $6.62 billion).

Microsoft (July 30, 2024)

• Revenue: $64.7 billion (exceeded forecast of $64.4 billion).

• EPS: $2.95 (above expected of $2.94).

Starbucks (July 30, 2024)

• Revenue: $9.11 billion (below projected $9.25 billion).

• EPS: $0.93 (below expected $0.935).

Meta (July 31, 2024)

• Revenue: $39.0 billion (above expected $38.26 billion).

• EPS: $5.16 (surpassed forecast of $4.71).

Qualcomm (July 31, 2024)

• Revenue: $9.39 billion (above expected $9.21 billion).

• EPS: $2.33 (slightly above forecasted $2.24).

Apple (August 1, 2024)

• Revenue: $85.7 billion (exceeded expected $84.4 billion).

• EPS: $1.40 (higher than projected $1.34).

Amazon (August 1, 2024)

• Revenue: $147.9 billion (below expected $148.6 billion).

• EPS: $1.26 (exceeded forecast of $1.03).

Exxon Mobil (August 2, 2024)

• Revenue: $93.06 billion (below expected $93.45 billion).

• EPS: $2.14 (higher than anticipated $2.06).

Chevron (August 2, 2024)

• Revenue: $51.18 billion (exceeded forecasted $50.6 billion).

• EPS: $2.55 (below expected $2.93).

Upcoming Earnings and Economic Data

Earnings:

• Monday: Palintir, CSX

• Tuesday: Uber, Airbnb, Yum!, Reddit

• Wednesday: Disney, Shopify, CVS

• Thursday: Eli Lilly, Gilead

• Friday: Hawaiian Electric

Major Economic Events:

• Monday: PMI

• Wednesday: Consumer Credit

• Thursday: Initial Jobless Claims

Stay tuned for more financial insights and updates next week!