Vikki Zhao
PUBLISHED August 9, 2024, 5:00 PM EST. 6 min read
Equities have faced some pressure at the start of August, with the S&P 500 currently down 7.5% from its mid-July highs. This decline was triggered by weakening economic data and a market adjustment as investors recognize potential economic challenges ahead.
Additionally, some market participants were caught off-guard by recent market movements, leading to forced selling, such as the unwinding of the Japanese Yen carry trade and a drop in Treasury yields.
Overall, this appears to be a normal, though sharp, pullback within an ongoing uptrend. Technically, the S&P 500’s 6% decline over three days (from Wednesday through Monday) represents a 3-standard deviation move, a rare occurrence over the last decade.
Historically, such sharp drawdowns often coincide with tradeable lows, leading to an oversold bounce. However, it’s also common for the market to experience sideways or choppy trading for weeks to months afterward, as investors seek clarity on the issues at hand, such as the potential ripple effects from the 20% drop in Japan’s Nikkei over three days.
It’s worth noting that August and September are typically the weakest months of the year seasonally.
A similar scenario occurred in early 2018 when the market was in a strong uptrend fueled by growing economic optimism. In February 2018, a VIX trading program unraveled, causing the S&P 500 to drop 10% in nine days before finding support at its 200-day moving average.
While the initial rebound from oversold levels was sharp, it took several months of choppy trading for the market to regain its footing and move higher, with a retest of the reaction lows two months later.
Economically, while activity is unlikely to experience a sudden decline, recent months have seen a softening in employment and slower consumption.
However, the economy has been resilient this year, as evidenced by the expansionary July ISM services survey. The Federal Reserve’s intention with high interest rates has been to normalize economic activity and the labor market, with the goal of reducing inflation. We are now witnessing the delayed effects of these high rates.
Nevertheless, with the Fed’s dual mandate of maintaining low inflation and maximizing employment, there are signs that the Committee may be ready to start lowering interest rates as it shifts its focus toward supporting the economy. AimStar analyst believes that the equity market has been highly sensitive to monetary policy over the past 15 years, any Fed easing is likely to provide some support.
As equities bounce back from oversold levels after a steep decline, it’s likely that this pullback or consolidation will continue before it fully plays out, whether in terms of price or duration. AimStar analyst remains optimistic about equities over the next 12 months and view the current weakness as an opportunity to accumulate positions gradually as the drawdown progresses.
*This article’s viewpoints are attributed by Olena Li.
Hudson’s Bay Co. Faces Store Closures Amidst Neiman Marcus Acquisition Plans
Reported on July 11 by AIMSTAR.CA – Hudson’s Bay Co. announced its intention to acquire Neiman Marcus Group LLC, aiming to become a leader in luxury goods. However, Canadian shoppers are more concerned about ongoing maintenance issues, with several Bay stores temporarily closed for repairs. Recent closures in Vancouver, Victoria, Winnipeg, and Windsor have sparked concerns about the company’s financial health and general upkeep. Analysts suggest that the closures indicate financial stress and could lead to store shutdowns. The acquisition aims to create a separate Canadian entity to enhance growth and liquidity, but its impact on resolving current store issues remains uncertain.
Sellers Return to Canadian Housing Market, Increasing Inventories and Buyer Bargaining Power
Reported on July 9 by AIMSTAR.CA – Sellers are flooding back into Canada’s housing market, boosting inventories in major cities and giving buyers more leverage. The Bank of Canada’s recent interest rate cut has encouraged some buyers, but not enough to offset the rising inventory, according to RBC economist Rachel Battaglia. New listings are outpacing sales, particularly in expensive markets like Toronto, where active listings surged 68% year-over-year in June. Despite a slight sales increase, Toronto’s home prices fell 4.6%. Similar trends are seen in Vancouver and Montreal, with rising inventories and subdued price growth. Battaglia suggests more significant interest rate cuts are needed to reignite market activity.
Mining Sector Drives Deal Surge on Bay Street
Reported on July 8 by AIMSTAR.CA – Higher commodity prices and the rise of electric vehicles have boosted the mining sector, making it the focus for Bay Street dealmakers in the first half of the year. Investors showed strong interest in companies supplying copper, with the sector involved in over half of equity and equity-linked deals. This surge led to 508 debt and equity deals worth $338.7 billion, a significant increase from the previous year. Major deals included First Quantum Minerals’ comprehensive refinancing and Capstone Copper’s equity offering. The mining boom, particularly in copper and battery-related metals, is expected to continue, driven by global trends in artificial intelligence and energy storage.
Tesla Falls Further as Reported Robotaxi Delay Weighs on EV Maker
Reported on July 12 by AIMSTAR.CA – Tesla (TSLA) shares are slipping more than 1% in premarket trading after suffering the steepest losses of any S&P 500 constituent Thursday with an 8.4% plunge on a report the EV maker is postponing its robotaxi unveiling by two months. The company previously indicated it would hold an event to introduce the autonomous vehicles on Aug. 8, but Bloomberg reported the presentation has been pushed back to October. Tesla shares entered Thursday on an 11-session winning streak to move into the green for the year, fueled by its better-than-expected second quarter deliveries report, but returned into negative territory for 2024 on yesterday’s plunge.
U.S. Inflation Cools, Possible Fed Rate Cut in September
Reported on July 11 by AIMSTAR.CA – U.S. inflation slowed in June, mainly due to reduced housing costs, raising the possibility of a Federal Reserve rate cut in September. Core CPI, excluding food and energy, increased by just 0.1% from May and 3.3% year-over-year, marking the slowest rise in over three years. Overall CPI fell 0.1% from the previous month. The labor market showed mixed signals, with high jobless benefit applications but a drop in first-time filings. Traders anticipate a rate cut in September, and Fed Chair Jerome Powell emphasized that decisions will be data-driven.
July 15 – July 19 COMING UP
- Federal Reserve Chairman Jerome Powell speaks on Monday, with other Fed officials making remarks throughout the week.
- Goldman Sachs, Bank of America, and Morgan Stanley are among the major bank earnings coming this week.
- Netflix and Johnson & Johnson also report earnings this week, while Amazon hosts its annual Prime Day sales event.
- The Republican National Convention will feature remarks from presidential candidate Donald Trump.
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