Weekly Newsletter August 4th to August 8th
RECAPPING LAST WEEK
U.S. equities recovered from last week’s drop with modest gains despite further weakness in labor markets. The S&P500 and Russell 2000 rallied 2% while the NASDAQ Composite advanced 3.5%. Eight of eleven S&P500 sectors ended the week positive, but only 3 rose sufficiently to overcome the troubles from the prior week. Consumer discretionary and staples were the top two sectors, gaining 3% each, with technology close behind. Once again, healthcare was the worst performing sector, nearing 3-year lows. With the jobs market in focus from last week’s employment report, weekly jobless claims hit 226k, bringing continuing claims up to 1.974 million, the highest mark since 2021. Services sector activity stagnated, with the ISM Services PMI slipping to 50.1, barely holding onto expansion above 50. Q2 productivity however rebounded 2.4%, following a 1.8% decline in Q1. Consumer credit rose by $7.37 billion in June, and household debt reached a record $18.39 trillion. Government debt wasn’t very appealing either, with weak 10- and 30-year bond auctions. The Swiss President was in Washington, for an ultimately unsuccessful attempt to negotiate a trade deal. That failure to come to an agreement may have influenced President Trump’s decision to add gold to the tariffs that took effect this week; combined, those brought our blended rate to the highest level since 1934. Gold reached new all-time highs above $3,500/oz on the news. Stephen Miran, a noted bitcoin advocate, was appointed to fill the vacant seat at the Fed, and President Trump signed an executive order allowing private investments and crypto in 401k plans. Bitcoin gained 2.5%, but Ethereum was the winner gaining over 15%, hinting there may be an “alt season” after all. Earnings were mixed, with PLTR MCD and UBER rising, while AMD, DIS, SNAP, AND SMCI tumbled after their reports. AAPL rallied after stating intentions to add $100 billion in domestic investment on top of the $500 billion the company had already pledged—this move caused the administration to grant them an exception from tariffs on Indian made iPhones. India was in the President’s crosshairs after their continued purchases of Russian oil, but OPEC’s announced production hike brought prices back down from the spike the week before. Over in Europe, investor sentiment collapsed as the Sentix Index fell to -3.7, while industrial production in Germany dropped 1.9% in June, the lowest since May 2020. Producer prices rose 0.8% MoM and retail sales climbed 0.3%. The BOE had a split vote but still cut 25 basis points, bringing their rate to 4%. China’s Caixin Services PMI expanded at the fastest pace in 14 months, while Canada’s Ivey PMI rose to 55.8 its highest point in a year.
THE WEEK AHEAD
Inflation will be the focus of this week, along with the revolving door of potential trade deals, with several reports anticipated throughout the week. Here at home, expectations from the Cleveland Fed on Inflation arrive Monday and the US preliminary expectations come Friday, with CPI, PPI, and Import prices reports sprinkled between. Germany will release CPI as well. GDP figures and confidence surveys will make up a large portion of the data this week. MoM GDP form the UK, QoQ Flash GDP from the EU, and preliminary GDP from Japan all get released Thursday. The NFIB Small Biz Index, Empire St Mfg Index, and Preliminary Consumer Sentiment all from the US come out, with similar reports from abroad. German ZEW Economic Sentiment and Australia’s NAB Biz Confidence survey will indicate the mood of investors there. Australia has a lot going on this week, with a rate statement from the RBA, a wage price index report, as well as employment figures. Industrial production and retail sales numbers from both the US Thursday and China Friday round out the week. Unemployment claims may be more in focus than normal, considering the less-than-ideal numbers from both this week and last. Investors are looking for additional evidence indicating a September rate cut, though that meeting feels an eternity away after recent data.
CHART OF THE WEEK
Equal weights not equal
The S&P500 Equal Weight Index (SPXEW) depicted below managed to eek out a gain last week, along with its cap weighted counterpart (SPX) (shown in purple), but not by much. Cracks are showing in the strength of the trend in both, but as concentration continues to build at the top, behemoths from the Mag 7, especially NVDA, AAPL, and AMZN held up SPX much more than the equal weight index. The MACD studies are both above 0, and the RSI is above 40 on both indices, so the trend is still up. However, bearish divergences in the MACD are also showing in both cases, indicating weaker momentum. The weaker momentum is much more apparent in the equal-weighted index, with the MACD barely above 0 and the RSI just holding above 40. A break of either would indicate increased bearish momentum. And if such a break in the indicators were to accompany a break below technical support at $7,300 on price, further downside would be more likely. There has been surprisingly little back-and-forth price action since the lows in April, so a retracement could be a welcome reset, and set up the next rally.
Source: Charles Schwab Corporation
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