Stocks and Bonds Mixed on Economic Data and Earnings Reports

The Dow (-0.4%), NASDAQ (+2.3%), and S&P 500 (+0.8%) exhibited mixed results last week.  The bond markets were also mixed, as taxable bonds were up about 0.3% and tax-free municipal bonds were down about 0.4%.  The 10-year Treasury yield was down slightly for the week, finishing at about 4.23%.

In corporate earnings news, the darling of 2023, Nvidia, reported blockbuster earnings for the 2nd consecutive quarter, vaulting tech stocks, especially those involved in Artificial Intelligence (AI).  Meanwhile, earnings reports from retailers such as Macy’s, Dick’s Sporting Goods and Foot Locker warned of a reduction in consumer spending.  This pretty much concluded corporate earnings season, as most companies have already reported their earnings.  As for economic data, existing home sales were down 2% over the prior month and 16% since last year.  This is caused by two things – higher interest rates and reduced supply.  While higher interest rates cause an expected reduction in demand to buy homes, it has also caused a reduction in supply, as many homeowners don’t want to replace their home when they already have a low interest rate on their current mortgage.  As a result, the supply of homes for sale was down 14.6% over the prior year.

On Friday, Fed Chairman Powell spoke after the international economic conference in Jackson Hole.  The much-anticipated speech did not push investors one direction or another, as Powell re-iterated his long stance of trying to lower inflation to 2%.  If anything, his remarks were considered as “hawkish”, suggesting that the Fed intends to keep interest rates higher for longer.  As a general rule, the stock and bond markets react negatively to rising inflation and a corresponding higher interest rate environment, as it tends to slow economic growth.  Two important data points will be announced this week – the Fed-favorite inflation gauge, Personal Consumption Expenditures (PCE), and the August Labor report.  Holy cow – that means August is almost over already!

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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.}