Wall Street Closes on a Positive Note After a Weak August

It was a second positive week for financial markets with investors interpreting the latest economic data as an indication that the US economy is starting to cool down. Consequently, there is a growing expectation that the Federal Reserve will be more inclined to maintain current interest rates when they convene their meeting associated with a summary of economic projections on September 19-20. Treasury yields eased accordingly.

In August, American employers expanded their workforce by 187,000 jobs, indicating a labour market that is slowing down but remains resilient, despite the high interest rates imposed by the Federal Reserve. While last month's job growth showed improvement over the revised 157,000 gained in July, it still indicates a moderated pace of hiring compared to the robust gains seen in the previous year and earlier this year. Over the span of June through August, the economy added 449,000 jobs, the lowest three-month total in three years. In the report released by the Labor Department on Friday, it was also revealed that the unemployment rate increased from 3.5% to 3.8%, reaching its highest level since February 2022, as a significant number of individuals, totalling 736,000, actively began seeking a job last month. This data adds to the mounting evidence that the extremely tight labour market conditions, which have led to substantial wage growth, may be gradually easing.

Additionally, data from the Bureau of Economic Analysis, released on Wednesday, disclosed that real US Gross Domestic Product (GDP) grew by 2.1% in the second quarter of 2023. This figure was below the expected 2.4%, suggesting that the resilience of the US economy might be showing early signs of softening following the rapid increase in interest rates.

Wall Street’s main indexes ended the week with healthy gains. The blue-chip Dow Jones Industrial Average rose over 490 points or 1.43%, while the broad-based S&P 500 climbed 2.5% and the tech-heavy Nasdaq Composite jumped 3.25%.

European stock indexes followed suit, though to a lesser extent. Economic sentiment in the Eurozone fell below expectations in August, marking a consistent decline that has persisted since the beginning of the year. The MSCI EMU was up 1.30% while the FTSE 100 gained 1.72%.

In Asia, Japan’s Nikkei soared to 32,710.62 (+3.44% for the week), offsetting the losses suffered in August and shrugging off weaker-than-expected capital spending and manufacturing activity data. The Bank of Japan maintains its current ultra-easy policy as underlying inflation remains "a bit below" its target. The Shanghai Composite broke a three-week losing streak, with a gain of 2.26%, as Chinese factory activity unexpectedly grew in August, offering hope for the economic recovery in the world’s second-largest economy. Furthermore, China introduced additional measures to bolster its struggling housing market. Simultaneously, it reduced foreign exchange reserve requirements for domestic banks, aiming to increase the availability of dollars and strengthen the yuan.

Growth sectors on the rise

Once again, the tech sector pushed the broader market higher, with an outsized gain of 4.42% for the S&P IT index, boosted by tech giants – Apple, Salesforce, and Nvidia stocks up 6.07%, 5.76% and 5.41% respectively week-over-week. Other growth sectors also gained ground. Communication services rose 3.46% with Netflix, Alphabet, and Meta, up 5.73%, 4.68%, and 3.81% respectively. The consumer discretionary sector got a boost (+3.03%) from Amazon's stock (+3.65%). Energy was not left out (+3.78% for the week as oil prices drew some support (WTI crude up 7.17%) from the storm developing in the Gulf of Mexico, China data, and US inventories that shrank by 10.6 million barrels last week. Traders also expect that the group of major crude producers will extend output cuts to the end of the year.

On the flip side, defensive sectors finished the week flat (health care up 0.05%) or in the red – consumer staples down 0.33%, utilities down 1.73%. Utilities are the worst-performing part of the stock market this year, down 11.82% year-to-date while tech stocks jumped 44.01%, amid high-interest rates and growing vulnerability to environment and climate-related risks as evidenced by the recent freefall of Hawaiian Electric shares (down 62.44% year-to-date).

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