Fed Rate Cuts on the Horizon? Analyzing August's Trends | Episode 167 | 09-05-24

Can a weakening labor market actually be a good sign? Join us on Markets with Megan as we dissect the unexpected factors that drove a dramatic equity market rebound in August. With the S&P initially down over 7%, it seemed like a grim start, but improving inflation numbers, potential Fed rate cuts, and a surprising surge in retail sales flipped the script. We'll break down how these elements created a unique environment where the Fed could consider rate cuts without sending consumers into a tailspin, ultimately leading to a positive shift in US equities.

We'll also explore the intriguing market rotation from growth to value, with value outperforming growth by about 60 basis points. In the fixed income realm, lower bond yields suggested a high likelihood of Fed rate cuts, boosting riskier sectors like high yield and emerging market bonds. Commodities, on the other hand, were a mixed bag with energy and grains taking a hit. Don’t miss our in-depth analysis of these economic indicators and market movements, providing you a comprehensive recap of August’s market dynamics. Subscribe now and explore our full library for more insights!

When we look back at the month of August, we saw one heck of a turnaround in the equity markets. It is Markets with Megan, it's Thursday, eptember 5th, and we wanted to give a brief recap of what we saw from an economic and a market perspective in the month of August. If you remember, in the first week of August we were looking at the S&P down over 7%. We had some pretty big declines in just a short period of time there in the very beginning of August, and we saw a massive turnaround in the markets. And what drove that turnaround? It was a few things. First of all, inflation continued to improve, so that opened up the door for potential Fed rate cuts. In September the labor market started to weaken and typically that would be a bad thing. But now that we're seeing some major cracks in the labor market, it again is kind of verifying that the Fed can come in and start cutting interest rates. The consumer also even though we've had high inflation for several years and weak consumer sentiment, we did see a rebound in retail sales for the month. So what you had from an economic standpoint was data that's solidifying it's okay for the Fed to cut rates but also data that's not showing the consumers completely falling off a cliff yet, and that's been the biggest concern here. So how did this translate into equity and bond market performance? So equities turned around and US equities ended the month on a positive note. But we did see a shift here, this rotation out of those growth names. You saw value actually outperform growth by about 60 basis points when you look at the Russell 1000 Value and Growth Index. So we got some more of those areas of the market that have been lagging catching up in the month of August.

From a fixed income perspective, we did get bond yields to go lower. So prices were higher, and that's because there's the likelihood that the Fed will cut interest rates. But we had some of those riskier sectors of fixed income participate in the global equity rally that we saw. So risk assets there did better, high yield did better, emerging market bonds did better, and when you looked at commodities, they were relatively flat for the month. We had some mixed information there. Energy and grains were both lower, but grains were dragged lower by soybeans and corn, and then both crude oil and heating oil were down for the month. So you have this concern here that if the economy is slowing globally enough for the Fed to cut interest rates. Then we could have less demand for commodities. That's all we have to wrap up the month of August there. If you like this podcast, please hit the like button subscribe. Hit that alarm bell if you can. And if you'd like other of our podcasts, you can go to our full library of them on marketswithmegan. fm. Thank you,