Weekly Commentary for the week ending September 6, 2024

As of September 6th, the WealthTrust DBS Portfolios have the following rankings for year-to-date performance for strategies on the SMArtX Platform:

 

WealthTrust DBS Long Term Growth is #8 in the Growth Category,

WealthTrust DBS Large Cap is #7 in the Large Cap Category,

WealthTrust DBS 70/30 Total Return is # 4 in the Balanced Category and

WealthTrust DBS 50/50 Conservative Growth & Income is #5 in the Balanced Category.

 

Over the past week, U.S. equity markets experienced notable declines, with the Dow falling 2.93%, the S&P 500 down 4.25%, and the Nasdaq retreating by 5.77%. Small-cap stocks also struggled, with the Russell 2000 dropping 5.69%, marking its second-worst week this year. The S&P 500 had its most challenging week since March 2023, while the Nasdaq posted its sharpest decline since January 2022.

The tech-heavy Nasdaq faced significant pressure, led by a steep decline in NVDA, which fell 13.9%. The broader technology sector slipped below its 100-day moving average (DMA), indicating potential headwinds. Weakness extended beyond tech, with cyclical sectors such as semiconductors (SOX -12.2%), industrial metals, machinery, energy, and others seeing notable losses. On the other hand, defensive sectors like household products, food and beverage, and managed care organizations showed relative strength, supported by a shift toward safer investments. Airlines also managed to see gains, likely buoyed by lower oil prices.

Treasury yields dropped sharply across the curve, hitting their lowest points since early to mid-2023. Gold edged down 0.1%, while copper fell 3.3%, and Bitcoin futures dropped 8.6%, dipping below $55,000. WTI crude experienced its steepest weekly drop since March 2023, falling 8% to its lowest level since June 2023.

 

WealthTrust Long Term Growth Portfolio Weekly Top 10

 

What Happened?

Markets were influenced by a combination of underwhelming economic data, hawkish commentary from the Federal Reserve, and growing concerns over economic growth. The August payroll report, coming in below expectations at 142,000 (versus the 165,000 consensus), along with downward revisions of 85,000 jobs from previous months, signaled a cooling labor market. The unemployment rate dipped slightly to 4.22%, while wage growth aligned with expectations at 0.3%. This raised discussions about whether the data supported a 50 basis point (bp) rate cut.

Initially, the likelihood of a 50 bp rate cut in September surged to around 60%, up from 30% the previous week. However, by Friday, those odds dropped to under 30% following cautious remarks from Fed officials. New York Fed President John Williams suggested that while risks like a softening jobs market might justify lowering rates, the Fed could eventually take a more neutral stance. Fed Governor Christopher Waller also indicated he would back a larger cut if the data warranted it, hinting at the possibility of a 25 bp cut.

Other economic reports contributed to the market's unease. The July JOLTS job openings report fell to 7.673 million, below expectations and the lowest since January 2021. Meanwhile, the Beige Book highlighted stagnant or declining activity in several Federal Reserve districts. Despite a slight beat in the August ISM Manufacturing index, it remained in contraction territory, and ISM Services, though better than expected, saw its employment index tick down.

In the commodities market, weaker oil prices contributed to a cautious outlook, though some argue this might help curb inflation risks after future rate cuts by the Fed.

 

Treasury Yields and Market Outlook

Shifts in Federal Reserve expectations led to a rally in Treasuries, with the 2-year yield dropping below 3.70% and the 10-year yield falling under 3.75%. The 2-year/10-year spread briefly moved into positive territory for the first time since July 2022. Some analysts view this re-steepening of the curve as a potential recession signal, while others note that past instances of this trend have sometimes been followed by strong stock market performance over the next 6-12 months.

 

Looking Ahead

Key data releases in the upcoming week include August core CPI on Wednesday, which is expected to remain steady at 0.2% month-over-month and 3.2% year-over-year. On Thursday, the August core PPI is anticipated to rise 0.2%, with an annual rate of 2.4%. The Michigan Consumer Sentiment Index on Friday is expected to see a slight uptick to 68.0. Several Treasury auctions are also scheduled, with $69 billion in 3-year notes, $49 billion in 10-year notes, and $30 billion in 30-year bonds.

 

Corporate Updates

The semiconductor sector saw its worst selloff since March 2020, with concerns mounting over valuations and growth prospects in AI-related industries. AVGO dropped 15.9% despite exceeding Q2 expectations and raising its AI forecast by $1 billion to $12 billion. Nvidia also faced pressure from antitrust concerns, while INTC saw a 14.3% decline amid reports of potential restructuring.

In the consumer sector, DLTR plummeted 21.3% after disappointing results, pointing to broader consumer challenges. Additionally, there are expectations that President Biden may block Nippon Steel's bid for U.S. Steel.

 

Conclusion

As we navigate this period of market volatility, we remain focused on careful risk management while identifying long-term growth opportunities that align with our strategy. Our strategy focuses on earnings plus research analysts' updates. We haven't identified any changes in these metrics that indicate a recession, and as always, we will continue to monitor the data.