US stock market had a strong finish on Friday, August 30, 2024. Major indexes like the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all closed higher for the day, capping off a volatile August with overall gains.  

Notably, the Dow Jones Industrial Average hit a new all-time high,while the S&P 500 and Nasdaq Composite also ended August with gains.    

Consumer Sentiment Boosts Market Confidence 

A report Friday showed US consumer sentiment improved for the first time in five months, driven by slower inflation and prospects for Federal Reserve rate cuts.  

The Fed’s preferred measure of underlying US inflation—the core personal consumption expenditures (PCE) price index—rose at a mild pace, which further boosted investor confidence about personal finances and economic stability.  

Weekly Market Performance Overview 

For the week:  

• S&P 500: +0.2% 

• Dow Jones: +0.9% 

• Nasdaq Composite: -0.9% 

Friday’s Closing Levels: 

Analyzing Friday’s Market Rally Amid Investor Caution

Interpreting Friday’s price action is challenging, given that many investors were away for the long weekend. Notably, the S&P 500 only rallied in the last 10 minutes of trading and failed to reach a new all-time high, closing just below it. 

According to data from Bespoke Investment Group cited by Bloomberg, September has historically been the worst month for the Dow Jones Industrial Average over the past 100 years, with an average decline of 1.24%. This trend also applies to the S&P 500, particularly in the second half of the month, where September tends to be a losing month.  

Shift from Tech to Small-Caps as Rate Cut Hopes Rise

Despite these historical trends, the recent rise in broader markets, especially the Russell 2000, suggests that further gains could be expected in the Dow, S&P 500, and potentially the Nasdaq. 

The Nasdaq has underperformed relative to the rest of the market, indicating a rotation out of tech stocks. This shift towards small-cap stocks is typical in anticipation of Fed rate cuts, as smaller companies tend to perform better with lower interest rates. 

Yield Curve Dis-Inversion Raises Recession Concerns 

However, one factor that tempers my bullish outlook is the dis-inversion of the 2-year/10-year (2Y/10Y) yield spread. We are very close to this spread turning positive, meaning the 10-year yield could be higher than the 2-year yield.  

The significance lies not just in the positive yield curve but in the shift from negative to positive territory, which has historically been a warning sign of an impending recession. 

While a recession is technically defined as two consecutive quarters of negative GDP growth, and the next GDP figure is not expected to be negative, markets could continue to grind higher.  

However, if more investors begin to fear a looming recession, we could see some profit-taking, which may drive prices lower. Friday’s job data may provide further insight into whether the economy is starting to crack or continuing towards a soft landing. 

Source: CBOE, Bloomberg 

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable US bank exceeding 20 years.  

Risk Disclosure
Securities, Futures, CFDs and other financial products involve high risks due to the fluctuation in the value and prices of the underlying financial instruments. Due to the adverse and unpredictable market movements, large losses exceeding your initial investment could incur within a short period of time.  
Please make sure you fully understand the risks of trading with the respective financial instrument before engaging in any transactions with us. You should seek independent professional advice if you do not understand the risks explained herein. 

Disclaimer
This information contained in this blog is for general reference only and is not intended as investment advice, a recommendation, an offer, or an invitation to buy or sell any financial instruments. It does not consider any specific recipient’s investment objectives or financial situation. Past performance references are not reliable indicators of future performance. Doo Prime and its affiliates make no representations or warranties about the accuracy or completeness of this information and accept no liability for any losses or damages resulting from its use or from any investments made based on it. 
The above strategies reflect only the analysts’ opinions and are for reference only. They should not be used or considered as the basis for any trading decisions or as an invitation to engage in any transaction. Doo Prime does not guarantee the accuracy or completeness of this report and assumes no responsibility for any losses resulting from the use of this report. Do not rely on this report to replace your independent judgment. The market is risky, and investments should be made with caution.