Key Takeaways
- After surprising to the upside by coming in at 2.8% versus an expected 2.0% in Q2, U.S. economic growth for the second quarter was revised even higher to 3.0%.
- The upward revision was driven by personal spending, a critical component of the consumer-driven S. economy, and was a welcome sign of strength amid ongoing concern that the U.S. was heading toward recession.
- A disappointing July jobs report, however, reignited fear that the Fed had waited too long to start cutting rates, resulting in damage to the economy and labor market that would inevitably lead to a slowdown in growth.
- Global equity markets were spooked and responded by plummeting during the first week of August, with the drawdown exacerbated by the unwinding of a popular carry trade due to Japanese rate hikes.
- The pain was short-lived, however, as major S. indices where able to finish the month positive and market breadth expanded, although the July rotation into small-caps stalled with the Russell 2000 dropping 1.5% for the month.
- One driver of the recovery was comments by Fed Chair Powell out of Jackson Hole which set the stage for a September rate cut and shifted the conversation to whether it would be 25 or potentially 50 bps.
- With additional FOMC meetings in November and December, markets are now pricing in four cuts totaling 100 bps by year end, though the Fed has stated that its decisions will remain data dependent.
- The labor market remains a source of concern, but inflation has continued to moderate as investors remain hopeful that the Fed can achieve a soft-landing.
- Within fixed income, Treasury yields fell throughout August as bond prices rose, while the yield curve remained inverted for a now record 26th consecutive month.
- Gold continues to climb, recently hitting a new all-time Oil has fallen significantly after topping $90 per barrel in April. Broad commodities remain mixed YTD, although the outlook remains positive with rate cuts on the horizon.
