Stocks and Bonds Lower as Bond Yields and Mortgage Rates Hit 20+ year Highs

The Dow (-2.2%), NASDAQ (-2.6%), and S&P 500 (-2.1%) all moved solidly lower, along with taxable and tax-free municipal bonds that fell about 0.5% - 0.6%.  Contributing to these declines was the 10-year Treasury yield that rose 0.08% to 4.25%, reaching the highest level since 2008.  The rise in the 10-year Treasury yield caused mortgage rates to eclipse 7%, reaching their highest rates since 2000.

In economic news last week, the Leading Economic Indicators (LEIs) for July showed they decreased for the 16th consecutive month, which has historically been a good predictor that a recession is coming.  However, consumers continue to spend, as retail sales rose 0.7% over the prior month.  Looking beneath the data, it appears that the consumer is borrowing more money, as total credit card debt just exceeded $1 trillion in the US.  Also last week, the July Fed meeting minutes were released, as investors learned that the Fed still may raise interest rates, sparking a selloff in stocks.  The Fed has its annual meeting in Jackson Hole this week, so investors will be waiting to hear the results of that meeting and what the Fed has to say.

Earnings season is nearing its end, except for the darling of 2023 – Nvidia - who reports their earnings on Wednesday.   Nvidia stock price has gone up 196% so far this year, meaning its stock price has nearly tripled.  Nvidia is the prominent chip maker for Artificial Intelligence (AI) and has led the way for those stocks who are actively engaged in AI.  That has caused the stock indices to rise sharply this year, but that has also been represented by only 7 stocks.  If Nvidia’s earnings (or its outlook) disappoint investors, this could result in a sharp downturn for those AI stocks.   Put your seat belt on, because the Nvidia earnings and the Jackson Hole economic summit could produce some volatility into the stock and bond markets this week.

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^{The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.}