What We Are Watching This Week
- Producer Price Index
- Consumer Price Index
- US Retail sales
- Housing Starts and permits
Highlights From Last Week
- S&P Final US Services PMI
- ISM Services
- Consumer Credit
- Initial Jobless Claims
The major indexes finished the week slightly down after bouncing back from the largest sell-off in nearly two years. On Monday morning, the S&P 500 Index came close to correction territory, dropping as much as 9.71% from its intraday high in mid-January. At the same time, the Nasdaq Composite fell 15.81% from its peak after entering a correction the previous Friday. The fluctuations in the CBOE Volatility Index (VIX), known as Wall Street’s “fear gauge,” were even more dramatic, with a brief spike to 65.73 on Monday—the highest level since late March 2020—before it settled back to end the week at 20.69. These swings seemed to be driven by technical factors and programmed trading strategies. A recent, though modest, rise in Japanese short-term interest rates appeared to prompt a partial unwinding of the “carry trade,” where investors borrow at low interest rates in Japan to invest in higher-yielding assets elsewhere, such as in the U.S. A sharp appreciation of the yen in recent weeks made this trade unprofitable, leading many investors to exit their positions. On the other hand, our traders observed that short covering—where investors hedge against further stock declines—appeared to help stocks rebound from their lows on Monday afternoon, while stock buybacks also provided support. The summer vacation season, which kept some long-term investors away from the market, may have further exacerbated the volatility.
Toronto stocks ended the week positively, with the TSX Composite Index rising to 22,274. This marked an overall gain of 0.2% over the shortened week due to a Monday holiday. The Canadian dollar also increased slightly, rising by 0.04 to 72.84 cents U.S. On the economic front, Statistics Canada reported a loss of 2,800 jobs in July, with the unemployment rate remaining at 6.4%.
In local currency terms, the pan-European STOXX Europe 600 Index recovered from steep losses earlier in the week, finishing 0.27% higher. Major stock indexes showed mixed results: Germany’s DAX rose by 0.35%, France’s CAC 40 Index increased by 0.25%, while the U.K.’s FTSE 100 Index remained largely unchanged. However, Italy’s FTSE MIB declined by 0.74%. Yields on eurozone government bonds generally increased, climbing from earlier lows this week following a global market downturn triggered by concerns over economic growth. A significant decrease in U.S. jobless claims helped alleviate these concerns, which weak U.S. manufacturing and employment data had intensified.
In July, the U.S. service sector experienced significant growth in business activity, driven by an increase in new orders. This expansion prompted firms to hire more staff, motivated by optimistic expectations for the future. The S&P Global U.S. Services PMI Business Activity Index remained strong, slightly decreasing from 55.3 in June to 55.0, indicating continued growth for 18 consecutive months. New business growth contributed to the increase in output, with companies citing customer referrals as a critical factor. There was also a modest rise in new international business for the first time in six months. Despite a slight decline in business confidence to an eight-month low, service providers remained hopeful about future growth, focusing on marketing and sales efforts. Factors such as potential interest rate reductions and post-presidential election demand improvements supported this optimism. Employment in the service sector increased for the second consecutive month, although not enough to keep up with the growth in new orders, resulting in a slight rise in backlogs. Input cost inflation accelerated to a four-month high, mainly due to higher wage and transportation costs. Despite this, companies increased their selling prices at a slower rate amid competitive pressures. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the robust growth in the service sector contrasts with the struggling manufacturing sector. The data suggests a solid economic growth rate comparable to a 2.2% annualized GDP increase. The easing of selling price inflation in the service sector is positive news for the Federal Reserve, as it aligns with the goal of reducing consumer price inflation to the 2% target. However, upward cost pressures in the service sector still need to be addressed.1
The services sector saw growth in July, marking expansion for the 47th time in 50 months, according to the Services ISM® Report On Business. The Services PMI was 51.4%, up from 48.8% in June. This marks the fifth time in 2024 that the index was in expansion territory. The sector grew for 15 consecutive months until a contraction in December 2022.
Key highlights from the report include:
- Business Activity Index: Increased to 54.5% in July from 49.6% in June, returning to expansion after a month of contraction.
- New Orders Index: Rose to 52.4% from 47.3% in June, though it remains among the lowest since the pandemic began.
- Employment Index: Expanded for the second time in 2024, rising to 51.1% from 46.1% in June.
- Supplier Deliveries Index: Dropped to 47.6%, indicating faster delivery times after two months of slower performance.
- Prices Index: Increased slightly to 57% from 56.3% in June, reflecting higher costs.
- Inventories Index: Contracted for the second month in a row at 49.8%, up from 42.9% in June.
The sector grew in ten industries, with the Services PMI expanding in 17 of the last 19 months. The report highlighted stable supply chain performance but noted increased costs. Survey respondents were cautious regarding the upcoming presidential election and potential tariff increases. Despite the challenges, the overall sentiment was positive, with business activity either flat or gradually expanding.2
On Wednesday, the Federal Reserve reported June consumer credit grew at a seasonally adjusted annual rate of 2.1%, bringing the total outstanding credit to $5.078 trillion. Revolving credit, primarily reflecting credit card debt, decreased to $1.344 trillion. Meanwhile, non-revolving credit increased annually by 3.4%, reaching $3.734 trillion. Student loans held by the federal government remain the largest component of non-revolving credit, accounting for 39.8% of it. Depository institutions and finance companies are the next largest holders, with shares of 24.4% and 19.3%, respectively, of non-revolving credit.3
In the week ending August 3, seasonally adjusted initial claims dropped to 233,000, a decrease of 17,000 from the previous week’s revised figure of 250,000, which was revised up by 1,000 from 249,000. The 4-week moving average increased by 2,500 to 240,750, with the last week’s average revised up by 250, from 238,000 to 238,250. The total number of continued weeks claimed for benefits in all programs for the week ending July 20 was 1,960,489, up by 21,649 from the previous week. In comparison, there were 1,852,160 claims filed for benefits in all programs during the same week in 2023.4
| WK | Year to Date | |
| Dow | -0.60% | 4.80% |
| S&P 500 | -0.04% | 12.05% |
| Nasdaq | -0.18% | 11.55% |
| S&P 400 Mid-cap | -0.42% | 5.54% |
| Russell | -1.34% | 2.66% |
| TSX | 0.20% | 6.30% |
| Oil | 4.80% | 7.60% |
- https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/july/
- https://www.federalreserve.gov/releases/g19/current/
Important Information:
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF).
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