Dows 400 Point Surge: During the week’s first trading day, there was a significant upturn in the US stock market which came to light as a welcome break from a very tiresome and difficult previous week of 2023. The Dow Jones Industrial Average experienced an increase of more than 400 points thereby marking a relishing rise of 0.7% on Monday. The S&P 500 and Nasdaq Composite also followed suit with their respective gains being 0.95% and almost 1%.
At the front end of the Dow list was Boeing whose stock rose by 3.3%. In addition, there were gains of over one percent for American Express and Caterpillar thus benefiting from this rally. Communication services together with technology emerged as the strongest sectors in S&P 500 with each growing by more than one percent.
Dows 400 point surge A Rocky Start to September
Market rebound, followed closely by a hard start to September historically known for its volatility. The first week had S&P 500 dropping by 4.3% which was its worst weekly performance since March 2023. Nasdaq was even worse off plunging by 5.8% marking the steepest decline it has seen since 2022 while Dow dropped by 2.9%.
These declines were mainly as a result of investor concerns after the August jobs report was released showing that only nonfarm payrolls had increased by 142000 against an expectation of 161000. Nevertheless, the unemployment rate moved down to 4.2% consistent with economists’ expectations. Labour market mixed signals led to more uncertainties leaving investors with possible effects on the broader economy in their minds.
Investors Eye Key Inflation Data
Throughout this week, investors anticipate the inflation numbers might contain some clues towards what the Federal Reserve will do next. Wednesday would see the release of consumer price index (CPI) for August while Thursday is set aside for producer price index (PPI). These reports could greatly influence expectations surrounding discussions within the Fed’s open market committee later in the month.
Presently, participants in the marketplace have put odds at 71 percent for a cut by 25 basis points at the next gathering of the Federal Open Market Committee. Conversely, according to the CME Group FedWatch Tool, there is also a 29 percent possibility of an aggressive reduction of 50-basis-points. Ostensibly that much could change these probabilities depending on what comes out from such reports.
Deutsche Bank’s Perspective
A report titled “Why are markets so nervous right now, and is this justified?” by Deutsche Bank strategic officer Henry Allen indicates that perhaps the recent market sell-off is exaggerated. Despite September being traditionally known to be an unfavourable month for stocks, Allan observes that the current economic situation is not as hopeless as it may appear.
He mentions several positive signs such as last month’s declining unemployment claims and payroll growth rates which are still rising. Furthermore, compared to what has previously happened in history; money matters seem to be just fine now. Also, Allen points out that developed nations’ banks, including European Central Bank (ECB), have generally preferred smaller rate reductions of 25 basis points, which means there is no system-wide panic regarding the world economy.
Conclusion: Cautious Optimism
Training has been conducted on data since Oct 2023. However, even though the rally on Monday gives a good feeling, it doesn’t wipe out what may come. Information about unemployment and inflation expected soon will reveal what the Fed will do next, hence determining the direction of the market.
The month of September has its own unique forces against which one needs to be careful. In addition to this, one should look at economic data and make consistent decisions in the face of these changes. There is hope for an upturn but we also remember that not all is well in terms of redemption because there might still be some pot-holes before us after all.
Disclaimer: The information in this “Stock Profile” blog post is for informational purposes only. It is not financial advice. Always consult a qualified expert before making investment decisions.
