What a week it was for Wall Street! Sentiment swung from the depths of negativity at the beginning to the peaks of positivity by the end. The S&P 500 slumped 3% on Monday, posting its worst trading session since September 2022 amid a global selloff, and then followed that up by notching its best day since November 2022 on Thursday. The volatile journey eventually concluded on Friday with the benchmark index closing largely flat for the week.
Monday’s rout was caused by a combination of recession worries sparked by July’s U.S. nonfarm payrolls report, and turmoil in Japan which was ignited by the Bank of Japan’s surprise interest rate hike and an unwinding of the yen carry trade. For the week, the S&P slipped 0.04%, the Nasdaq Composite retreated 0.2%, and the Dow fell 0.6%.
Future Wealth’s View
It’s been a long journey, but the current US monetary tightening cycle is by all accounts at its peak, with a September interest rate cut by the Federal Reserve a forgone conclusion. All eyes now turn to this week’s inflation print to decide the central bank’s effort to achieve a soft landing.
But, all is not well. The real estate market is still plagued by low inventory and soaring borrowing costs. Consumer spending remains strong but a mountain of credit card debt continues to pile up, with Americans increasingly turning to plastic to fund their purchases. While inflation growth has come down from record highs, price tags on nearly every item are still elevated compared to where they were several years ago. That has made portions of the population reliant on credit cards to finance purchases of everyday goods and services. According to the Federal Reserve Bank of New York, credit card debt reached $1.14 trillion in Q2, up 5.8% from a year earlier, or about $6,500 per person.
While last week’s bloodbath has been mitigated, the markets appear extremely nervous and another bit of bad news could be a sucker punch to the gut.
Stay safe.