“A challenging start for stocks in August doesn’t necessarily signal a deeper market downturn, according to Angelo Kourkafas, senior investment strategist at Edward Jones.
July’s inflation data, highlighted by the producer-price index, revealed a 2.2% year-over-year rise in wholesale prices, down from June’s 2.7%.
‘Market are reacting positively to this,’ Kourkafas noted. ‘Yields have fallen, and stocks have risen, fueled by the expectation that the Federal Reserve may cut interest rates next month.’
Despite the Dow Jones Industrial Average pulling back slightly from its session highs, it still recorded a 0.4% gain on Tuesday. The S&P 500 climbed 1%, and the Nasdaq Composite rose 1.6%, according to FactSet data.
Concerns over the strength of the U.S. economy grew after a weak July jobs report, igniting discussions about whether the Federal Reserve has kept rates too high for too long.
However, easing inflation has balanced the Fed’s approach. Wall Street doesn’t anticipate that July’s consumer-price index, due on Wednesday, will alter the outlook for a Fed rate cut next month.
‘The markets are already pricing in an easing cycle,’ Kourkafas said.
Main Street seems to share this sentiment. Kourkafas cited Home Depot Inc.’s recent earnings report, which exceeded expectations but included a cautious full-year forecast. Management noted that consumers are delaying large projects, particularly due to waiting for lower mortgage rates.
With consumer spending remaining robust, earnings holding steady, and continued job growth, Kourkafas advises investors to secure higher bond yields and consider stocks trading at lower valuations than the megacaps.
‘The August pullback doesn’t have to mark the start of a more significant downturn,’ Kourkafas remarked, adding that these factors suggest the bull market could persist.
Despite sharp declines in August, all three major stock indexes remain up for the year, with the S&P 500 on track for a 13% gain in 2024.”
