A week can be a long time in the markets

Last week, the S&P 500 index saw significant volatility, initially rallying 158 basis points after the FOMC meeting, but ultimately closing at 5346, down 206 basis points for its third consecutive week of losses. The Nasdaq 100 decreased by 306 basis points, nearing an 11% decline from its peak, while small caps dropped 667 basis points, experiencing a 3% decline on both Thursday and Friday.

U.S. Treasury yields fell sharply, with the 10-year down 40 basis points to 3.79% and the 2-year down 50 to 3.88%.

Market volatility increased, highlighted by a spike in the VIX reminiscent of 2020. Internationally, the Nikkei Index declined following the Bank of Japan’s interest rate hike.

In currency markets, the Yen depreciated from 154 to 145 amid speculation of a domestic interest rate cut. Economic data released on Thursday revealed disappointing ISM manufacturing numbers, raising concerns of a potential recession, further supported by a weak jobs report on Friday, which indicated only 114,000 new jobs added in July.

Despite these grim figures, the household survey showed anomalies due to weather-related job disruptions. The fed futures market now anticipates up to 4.6 rate cuts by year-end, with a notable chance of a 50-basis point cut in September.

Although S&P 500 earnings have surpassed estimates by 5.2% and revenue by 0.9% through 377 companies, limited positive stock reactions reflect consumer uncertainties. This week, fewer earnings reports are expected, but key consumer data is anticipated from retail businesses, alongside slower economic releases including service sector PMI data and initial jobless claims.