Market Update: What Happens Next?

It’s been a wild August for markets.

Recession fears kicked off the worst selloff since 2022 at the beginning of the month.

Then markets staged a “choppy” recovery, even notching the strongest week of the year along the way.¹

Markets are closing in on all-time highs again.

That’s not so surprising.

It’s very common for a strong recovery to follow a selloff.

It’s one of the (many) boring reasons we recommend not abandoning an investing strategy when markets get jittery.

No one can predict the future, but we can show you what has historically happened and offer reassurance.

So, what could happen next for markets?

It’s probably safe to expect more volatility ahead.

Despite renewed recession fears, fresh data seems to have eased investor anxiety and boosted hopes that a recession-free “soft landing” is still achievable.

That’s good news for markets, but there are plenty of risks to watch.

What positive factors could push markets higher?

Inflation continues to head downward, which is good news for consumers and supports the case for interest rate cuts this year.²

In fact, as I write this, Fed Chair Jerome Powell is speaking in Jackson Hole – indicating that rate cuts are imminent.

Other economic data is also showing optimism.

Retail sales jumped unexpectedly, suggesting American consumers are doing better than expected.³

Since consumer spending accounts for about 70% of U.S. economic growth, it’s a big indicator of economic health.

Analysts currently expect the Federal Reserve to cut interest rates in September.⁴

Notes from the last Federal Open Market Committee meeting showed that policymakers are close to cutting rates, supporting hopes for a September cut.⁵

What negative factors could trigger a selloff?

The labor market is showing cracks.

The unemployment rate ticked up in July to its highest level since October 2021, and job growth slowed more than expected.⁶

You can see in the chart above that job creation has been slowing down over the past two years.

That’s not entirely surprising since the labor market has been recovering from pandemic disruptions.

However, a recently released annual revision of job data showed that the economy added nearly 30% fewer jobs over the last 12 months than originally reported.⁷

If the labor market weakens and Americans start to worry about their financial situation, it could erode consumer confidence and spending later in the year.

The past few weeks have shown us how easy it is for investors to lose their optimism in a selloff…

And then quickly regain it in a recovery.

While markets tend to reflect the economy in the medium and long term, the opposing emotions of fear and greed tend to have greater influence in the short term.

We’re seeing a lot of reasons to be optimistic, but we’re also watching some clouds on the horizon.

Though it doesn’t seem likely that a recession is here or even around the corner, we’re monitoring the data closely and will reach out with any material updates.

Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.

We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.

More relevant articles by Financial Synergies:

• Using the History of Bear Markets and Recessions as a Guide
• Don’t Let a Recession Faze You
• Market Meltdown: Explained

Sources:

1. https://www.cnbc.com/2024/08/18/stock-market-today-live-updates.html

2. https://www.bls.gov/news.release/cpi.nr0.htm

3. https://www.cnbc.com/2024/08/15/retail-sales-july-2024-.html

4. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

5. https://www.cnbc.com/2024/08/21/fed-minutes-july-2024.html

6. https://www.cnbc.com/2024/08/02/job-growth-totals-114000-in-july-much-less-than-expected-as-unemployment-rate-rises-to-4point3percent.html

7. https://www.cnbc.com/2024/08/21/nonfarm-payroll-growth-revised-down-by-818000-labor-department-says.html

Chart source: https://fred.stlouisfed.org/series/PAYEMS#0, trend line is linear

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