Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager. Today, I wanted to spend a few minutes to give you an update on the markets for the month of August.

Market Returns for August:

In case you weren’t paying attention to the markets in August, on the surface it may look like you didn’t miss much, as the US equities are near all-time highs again. However, the S&P 500 dropped 6.4% in the first three trading days in August, and the NASDAQ had fallen more than 10% to start the month. Despite the volatility, the S&P 500 gained back all those losses and was up 2.43% for the month.

The stock market drop was attributed in part to a weaker-than-expected July jobs report, which many feared the Federal Reserve had already waited too long to begin cutting interest rates. Adding fuel to the sell-off was the surprise rate hike by the Bank of Japan, which sparked the rapid unwinding of the popular Japanese-yen carry trade. In fact, Japan was down over 12% in overnight trading in early August.

Strong fundamentals helped make the case to buy the dip. The S&P 500 earnings growth for the second quarter shows companies grew by 12% over the prior year. Seven of the 11 sectors have exceeded analyst expectations.

GDP:

In the government's latest GDP reading, annual growth was lifted sightly from 2.8% to 3.0% as consumer spending was revised upward to 2.9% from an initial estimate of 2.3%. The growth was more than double compared to the first quarter's 1.4% quarterly pace.

Federal Reserve/Inflation/Interest Rates:

Fed Chair Jerome Powell affirmed in his speech at Jackson Hole that policymakers were prepared to deliver a rate cut as early as next month, citing confidence inflation is in retreat and a weaker labor market.

Both the 2-Year Treasury and 10-Year Treasury are currently yielding around 3.9% at the end of August as the bond market is pricing in several fed funds rate cuts. Currently, the market is expecting the Fed may cut interest rates by 1% by the end of year, which would bring the fed funds rate to 4.25 - 4.50%.

Outlook:

Investors face a big employment report this week, which may be a deciding factor whether the Federal Reserve decides to cut interest rates by 0.25% or 0.50% at their next meeting on September 18th. Analysts are expecting the jobs growth to be 165,000 and for the unemployment rate to tick down slightly from 4.3% to 4.2%.

Historically, the month of September has been one of the more volatile months of the year. Investors will be closely watching the upcoming jobs number, Federal Reserve Meeting on September 18th, inflation trends, and any updates on the upcoming election in November.

Thanks for joining me for this month’s market update.