August 18th - Weekly Commentary

John McHugh |

Weekly Market Recap: Major Indices Rally as Soft Landing Optimism Gains Momentum

I’m pleased to share an encouraging market update following a strong week for U.S. equities. The major indices all posted significant gains, with the Dow up 2.94%, the S&P 500 up 3.93%, the Nasdaq surging 5.29%, and the Russell 2000 adding 2.93%. This rally marked a much-needed reversal, breaking a four-week streak of declines for the S&P 500 and Nasdaq, and delivering the best weekly performance since November 2023.

 

WealthTrust Long Term Growth Portfolio Weekly Top 10

 

 

Big Tech Leads the Charge

Leading the market’s charge were big tech names like Nvidia (NVDA, +18.9%) and Tesla (TSLA, +8.1%), reflecting continued strength in sectors driving AI and advanced technologies. Semiconductors also had a stellar week, with the Philadelphia Semiconductor Index (SOX) up 9.8%. Beyond tech, large-cap banks (BKX, +3.9%), regional banks (KRX, +3.8%), and consumer staples such as Walmart (WMT, +8.1%) also outperformed. Notably, Starbucks (SBUX) surged an incredible 26.3%, driven by significant corporate changes, while Ulta Beauty (ULTA, +17.1%) and the apparel sector posted strong gains as well.

While the broader market was mostly positive, a few sectors lagged. Headwinds hit home products, steel, protein, and telecom stocks, while forest products and global miners also saw declines.

 

Macroeconomic Drivers: Soft Landing Narrative Strengthens

This week’s optimism largely stemmed from the ongoing soft landing narrative. Economic data, including July retail sales, initial jobless claims, and improved consumer sentiment, pointed toward cooling growth without signs of a sharp downturn. Notably, the NY Fed’s Survey of Consumer Expectations showed that 3-year inflation expectations hit a series low, bolstering confidence in a controlled economic slowdown. The bullish sentiment was reinforced by the latest BofA Global Fund Manager Survey, where a record 76% of managers expect a soft landing.

Moreover, corporate earnings continue to provide a tailwind, with expectations for S&P 500 earnings (excluding the top 7 tech giants) to return to positive growth in Q3. Earnings from companies like Walmart, which raised guidance and reported strong consumer demand, and Cisco (CSCO, +8.8%), which benefited from robust AI-driven infrastructure demand, were particularly encouraging.

 

Risks and Valuations to Watch

While the market has rallied, risks remain. The Fed’s path is less dovish than previously anticipated, with rate cuts now expected to total below 100 basis points by year-end, down from over 130 basis points earlier this month. Inflation also remains sticky in certain areas, notably shelter, which reversed its recent decline. Concerns about rising consumer loan delinquencies and corporate layoffs continue to linger, despite this week’s positive retail sales report. Valuations, as measured by metrics like price-to-earnings (P/E) ratios, remain elevated, and Q3 earnings revisions have been trending weaker, with projected growth down from 11% to 6%.

 

Economic Data and Fed Updates

July’s core CPI met consensus expectations, but the three-month annualized core CPI slowed to 1.57%, the lowest since February 2021. Meanwhile, retail sales posted their largest increase since January 2023, and weekly initial claims hit their lowest level since early July, supporting the soft landing outlook. On the Fed front, dovish signals came from officials like Atlanta Fed’s Raphael Bostic, who emphasized the need to prioritize the employment mandate, and Chicago Fed’s Austan Goolsbee, who argued for preemptive rate cuts to avoid labor market deterioration.

 

Looking Ahead: Key Events and Data

Next week, all eyes will be on the Fed’s Jackson Hole symposium, where Chair Powell is expected to outline the economic outlook. Markets will closely watch for any signals on the Fed’s future rate path, especially as it balances inflation concerns against the risk of an overly restrictive policy. The release of the July FOMC meeting minutes, along with data on flash manufacturing and services PMIs, and housing sales, will further shape market sentiment.

 

Sector Performance Highlights

Top Performers:

  • Technology: +7.51%
  • Consumer Discretionary: +5.21%

Underperformers:

  • Real Estate: +0.07%
  • Energy: +0.85%
  • Utilities: +0.97%

 

Final Thoughts

This week’s performance underscores the market’s confidence in a soft landing scenario, buoyed by resilient earnings, positive economic data, and declining volatility. While risks remain—particularly around valuations and inflation—the current environment presents opportunities for strategic positioning, especially in sectors like technology and consumer discretionary. As always, we remain vigilant in managing risk while seeking to capitalize on opportunities aligned with long-term growth.