What We Are Watching This Week
- Durable Goods Orders
- Consumer Confidence
- Personal Consumption index (PCE)
Highlights From Last Week
- US Leading Indicators
- S&P Flash US Services and Manufacturing PMI
- Existing and New Home Sales
The Dow Jones Industrial Average and S&P 500 Index approached record highs as investors responded positively to Federal Reserve Chair Jerome Powell’s announcement of impending interest rate cuts. The market saw broad-based gains, with small-cap stocks outperforming large-caps and an equal-weighted version of the S&P 500 Index surpassing its capitalization-weighted counterpart. Trading activity was notably light throughout the week. The primary driver of market sentiment was Powell’s speech at the Kansas City Fed’s annual economic symposium, where he signaled potential rate cuts in September, possibly by 50 basis points instead of the usual 25.
The TSX Composite Index jumped 248.61 points, or 1.1%, closing the day and week at 23,286.08, marking a weekly gain of 231 points, or 1%. The Canadian dollar also strengthened, rising by 0.51 cents to 74.01 cents U.S. In corporate news, the Teamsters union announced that workers at Canadian National Railway would return to work after the government intervened to end a lockout that had threatened the economy. On the economic front, retail sales fell by 0.3% in June, totaling $65.7 billion. The decline was driven by decreases in four of the nine subsectors, with motor vehicle and parts dealers leading the drop.
The pan-European STOXX Europe 600 Index rose by 1.31%, driven by optimism that the Federal Reserve and European Central Bank might cut interest rates next month. Major stock indexes also saw gains, with Germany’s DAX up 1.70%, France’s CAC 40 gaining 1.71%, and Italy’s FTSE MIB increasing by 1.83%. The UK’s FTSE 100 saw a smaller rise of 0.20%. In August, eurozone business activity improved, with S&P Global’s purchasing managers’ index (PMI) for the region increasing to 51.2 from 50.2, signaling expansion. This boost was mainly due to increased services sector output driven by preparations for the Paris Olympics. However, manufacturing continued to contract for the 17th consecutive month.
In July 2024, the Conference Board Leading Economic Index (LEI) for the U.S. fell by 0.6% to 100.4, continuing a downward trend with a 2.1% decline over the past six months, though slower than the previous period. This suggests ongoing economic challenges, with significant weaknesses in non-financial components such as new orders and consumer expectations. Despite this, the LEI no longer signals a recession ahead, although economic growth is expected to slow, with GDP projected to increase by 0.6% in Q3 and 1% in Q4 of 2024. The Conference Board Coincident Economic Index (CEI) remained unchanged in July at 112.5, showing a 0.9% growth over the past six months, with most components improving except for industrial production. Meanwhile, the Lagging Economic Index (LAG) slightly decreased by 0.1% to 119.6, with its six-month growth rate softening to 0.6%.1
The U.S. economy created 818,000 fewer jobs than initially reported for the 12 months through March 2024, according to the Labor Department’s preliminary annual benchmark revisions. The Bureau of Labor Statistics (BLS) revised job growth downward by nearly 30%, from the originally reported 2.9 million to about 2.1 million. This -0.5% revision is the largest since 2009 and implies that monthly job gains were around 174,000, not 242,000 as initially believed. The largest downward revisions occurred in professional and business services (-358,000 jobs), leisure and hospitality (-150,000), manufacturing (-115,000), and trade, transportation, and utilities (-104,000). Some sectors, like private education and health services, saw upward revisions. Despite these changes, nonfarm payroll jobs increased by 1.6% from July 2023 to July 2024. However, concerns about a weakening labor market are growing, especially with the unemployment rate rising to 4.3%, triggering the “Sahm Rule,” which suggests a recession might be imminent. This weaker-than-expected job growth could prompt the Federal Reserve to consider cutting interest rates in September. Chair Jerome Powell addressed this at the Fed’s annual Jackson Hole retreat.2
For the week ending August 17, initial claims for unemployment benefits increased by 4,000 to 232,000, after a slight upward revision of the previous week’s number to 228,000. The four-week moving average of claims decreased by 750 to 236,000. Additionally, the total number of continued claims for benefits across all programs for the week ending August 3 was 1,907,356, down by 24,772 from the previous week. This is higher compared to 1,839,165 claims during the same week in 2023.3
In August, U.S. business activity maintained strong growth, signaling continued economic expansion in the third quarter, according to S&P Global’s flash PMI survey. However, there were notable disparities between sectors. The service sector saw solid and increased growth, while manufacturing output experienced its sharpest decline in 14 months. Employment also suffered, with manufacturing hiring nearly stalling due to bleak prospects and service sector payrolls declining amid recruitment challenges. On the inflation front, there was positive news as the rise in prices for goods and services was the smallest since June 2020, except for a dip in January. However, input costs remained stubbornly high compared to historical norms. The S&P Global Flash US PMI Composite Output Index slightly decreased from 54.3 in July to 54.1 in August, a four-month low, though output has consistently grown for 19 months. Despite this, growth has become increasingly uneven. Service sector activity grew robustly, nearing June’s 26-month high, while manufacturing output fell for the first time since January, with the steepest decline since June 2023. Order book trends also diverged, with new work inflows rising in the service sector but falling in manufacturing, where orders dropped at the fastest rate since December. Export orders declined in both sectors. Looking ahead, optimism about future output improved slightly from July’s three-month low, driven by the service sector, but manufacturing confidence remained subdued, weighed down by uncertainty surrounding the Presidential Election and future demand.4
According to the National Association of REALTORS, existing home sales increased by 1.3% in July, breaking a four-month decline. Sales improved in three of four major U.S. regions, with the Midwest remaining steady. Year-over-year, sales rose in the Northeast and West but declined in the Midwest and South. The total number of completed transactions, including single-family homes, townhomes, condominiums, and co-ops, reached a seasonally adjusted annual rate of 3.95 million, down 2.5% from July 2023. The median home price across all housing types rose by 4.2% year-over-year to $422,600, with all regions seeing price increases. Housing inventory at the end of July was 1.33 million units, a 0.8% increase from June and a 19.8% increase from the previous year. The supply of unsold homes was 4.0 months, slightly down from June but up from 3.3 months in July 2023. First-time buyers made up 29% of sales in July, consistent with June but down from 30% a year ago. All-cash sales accounted for 27% of transactions; individual investors or second-home buyers purchased 13% of homes. Single-family home sales increased by 1.4% but were down 1.4% from the previous year, with a median price of $428,500. Condo and co-op sales remained unchanged from June but were down 11.6% year-over-year, with a median price of $367,500. Regional trends showed varied performance, with the Northeast and West seeing modest sales increases while the Midwest and South faced declines.5
In July 2024, sales of new single-family homes reached a seasonally adjusted annual rate of 739,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. This figure represents a 10.6% increase from the revised June rate of 668,000 and is 5.6% higher than the July 2023 estimate of 700,000. The median sales price for new homes sold in July 2024 was $429,800, while the average sales price stood at $514,800. At the end of July, the seasonally adjusted inventory of new homes for sale was estimated at 462,000 units, translating to a 7.5-month supply at the current sales pace.6
| WK | Year to Date | |
| Dow | 1.27% | 8.25% |
| S&P500 | 1.45% | 18.13% |
| Nasdaq | 1.40% | 19.10% |
| S&P400 Mid-cap | 2.82% | 11.31% |
| Russell | 3.58% | 9.45% |
| TSX | 1.00% | 11.10% |
| Oil | -0.80% | 4.50% |
- https://www.conference-board.org/topics/us-leading-indicators
- https://www.bls.gov/ces/notices/2024/2024-preliminary-benchmark-revision.htm
- https://www.dol.gov/ui/data.pdf
- https://www.pmi.spglobal.com/Public/Home/PressRelease/80e718ea1a5f4b3e9b51bfccf1841bb3
- https://www.nar.realtor/newsroom/existing-home-sales-advanced-1-3-in-july-ending-four-month-skid
- https://www.census.gov/construction/nrs/current/index.html
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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