Weekly Wrap-Up - August 3rd, 2024

Mega cap earnings disappoint, labor market weakens

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CMG Venture & Mark Roussin
August 03, 2024

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Market Talk

It was a tough week for both the Nasdaq and S&P 500 as the technology sector and several mega caps saw another large sell-off, leading to investors fleeing to safety in treasuries.

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3 Stories Moving the Market

These are some of the biggest stories from the second half of the week that had an influence on market action.

Mega cap earnings disappoint, overall market sinks

The Nasdaq Composite entered correction territory on Friday, falling over 10% from its July peak due to poor earnings from several mega cap companies, as well as concerns about a U.S. economic slowdown sparked by weak employment data.

Amazon dropped 11.7% after reporting slower online sales growth and cautious consumer behavior.

Intel plunged 26.7% after forecasting lower third-quarter revenue and suspending its dividend.

Other tech giants like Microsoft and Alphabet also declined by about 2%, while Meta fell 1.0% despite recent positive results.

Apple was the only standout, rising 2.3% on better-than-expected iPhone sales and optimism about AI-driven growth.

👉 EDGE TAKEAWAY: The market has shown companies need to be perfect this earnings season or they risk being sold off heavily. Investors are growing concerned about…upgrade to Edge+ to read the Full Edge Takeaway.

Job growth totals 114,000 in July, much less than expected, as unemployment rate rises to 4.3%

Job growth in the U.S. slowed significantly in July, while the unemployment rate edged higher.

Nonfarm payrolls increased by just 114,000, much lower than expected and down from June's revised 179,000. The unemployment rate rose to 4.3%, the highest since October 2021.

Average hourly earnings grew by 0.2% for the month and 3.6% year-over-year, both below expectations.

The labor market, previously a strong point in the economy, is now showing signs of weakening. The increase in unemployment brings into consideration the Sahm Rule, which signals a potential recession if the three-month average unemployment rate is half a percentage point higher than its 12-month low.

📚 EDGE-UCATION: What is the SAHM rule and what does rising unemployment mean for the economy?

The Sahm Rule is an economic indicator that helps identify the start of a recession based on changes in the unemployment rate. Named after economist Claudia Sahm, it states that the economy is likely in a recession if the three-month average of the unemployment rate rises by 0.5 percentage points or more from its lowest level over the previous 12 months. This rule provides an early warning signal for economic downturns.

As indicated by the Sahm Rule, a significant and sustained increase in unemployment is often a sign that the economy is entering a recession. During a recession, businesses cut back on investment, consumer spending declines, and overall economic activity contracts. Rising unemployment may prompt the government and central banks to take action, such as implementing stimulus measures, reducing interest rates, or increasing government spending to support the economy and create jobs.

If unemployment rises and stays high, it can lead to lower inflation or even deflation, as lower demand reduces upward pressure on prices. However, if the rise in unemployment is accompanied by supply chain disruptions or other factors, it can lead to stagflation, where high inflation and high unemployment coexist. 

Overall, rising unemployment is generally a negative sign for the economy, indicating potential trouble ahead, and it often requires careful monitoring and intervention by policymakers.

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Fed holds rates steady and notes progress on inflation

The Federal Reserve decided to keep short-term interest rates unchanged but suggested that inflation is nearing its target, potentially paving the way for future rate cuts.

However, officials did not signal that a reduction is imminent, expressing continued concerns about economic conditions and the need for further progress before lowering rates.

Fed Chair Jerome Powell hinted that a rate cut could occur as soon as September if inflation data shows improvement.

Markets are anticipating potential rate cuts in September, with further reductions possibly in November and December.

In Other News

In this section, we'll be curating a selection of news headlines we think you'll find interesting. If a topic catches your eye, click the provided links to read more about it.

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IE+ Posts of the Week

We continue to push out more and more content every week to give investors that edge. Here are the posts Investor’s Edge+ subscribers received this week.

Edge Report

Mondays are for the investors. Every Monday morning we share exactly what we’re watching in the week ahead, how we’re positioning, and even share a sneak peek into our systems and models. This week we discussed the upcoming earnings reports, the important inflation report on the calendar and our belief that volatility was here to stay. See the latest full report here:

The Edge Report - July 22nd, 2024

More earnings and an extremely important inflation report

theinvestorsedge.beehiiv.com/p/edge-report-july-22nd-2024

Earnings Recap

Every week during earnings season we share a recap of the quarterly reports from stocks that we cover. You can see this week’s earnings recaps here:

The Week Ahead

After a tumultuous week of earnings, we have another major week of earnings as several key companies report.

Earnings Reports

Let the earnings season begin. Here is the list of names we will be covering next week:

  • Saturday 8/3: Berkshire Hathaway

  • Monday 8/5: Realty Income and Simon Property Group

  • Tuesday 8/6: Caterpillar, Uber, AirBnB, and Celsius Holdings

  • Wednesday 8/7: Disney and Shopify

  • Thursday 8/8: Eli Lilly and The Trade Desk

  • Friday 8/9: --

Here is the full calendar of scheduled earnings releases:

Source: Earnings Whispers

Economic Reports

Next week we get a welcome quiet week in terms of economic data. After several weeks of poor data, we only have two key PMI reports and the jobless claims on the calendar.

Want more? Check out our other resources

If you haven’t done so, check out the social media pages of our collaborators and give them a follow:

Mark (Dividend Seeker)

Chris (CMG Venture)

Thank you for reading this edition of the Weekly Wrap-Up. Have a great weekend!

Until next time investors!

Mark & Chris

The Investor’s Edge

Disclosure

This is not investing advice. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.

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