Economy
The latest report from the Bureau of Economic Analysis showed the broad US economy grew by 3.3% last quarter, bouncing back from the previous quarter's decline of 0.5%. Year over year growth of the economy sits at a rate of 2.1%. Economist Brian Wesbury once referred to the US economy as a plow horse when we see growth at these rates. We don't look like a horse that's off to the races, but one that's moving at a steady, albeit slow, pace. Perhaps we'll see this horse pick up speed in the second half of the year if the Atlanta Fed's models are accurate. Their GDPNow forecasts call for GDP to expand to 3.5% in the third quarter.
Next week will be a huge week for econ nerds and Fed watchers alike when the August jobs numbers are printed on Friday. July's disappointing numbers brought the rolling three month average to just 35,000 new jobs per month. Expectations are relatively low for August with some forecasts estimating less than 80,000 jobs created for the month. A weak jobs number should bolster calls for the Fed to cut rates when they convene in just under three weeks.
Markets
The S&P 500 closed just 0.1% lower this week after hitting a new all-time high on Thursday. The index closed above 6,500 for the first time on the heels of Nvidia's earnings call. For all the talk of how concerning it is that the market has become so concentrated at the top and how expensive those "Magnificent 7" stocks have gotten, it's hard to say it isn't completely justified. John Butter's at FactSet wrote that on June 30 (prior to earnings season) the Mag 7 companies were expected to see earnings growth of 13.9%. Now that we've heard from all 7 companies (100% of whom beat expectations), we see that in aggregate they grew earnings by more than 25% for the quarter. It's remarkable how these companies just continue to seemingly defy the laws of corporate physics.
Since we're closing out the month, it's also worth mentioning the outperformance of small cap stocks relative to the S&P 500 for August. While the S&P 500 turned in a respectable 1.5% return, the Russell 2000 rose by 5.6%. It's apparent that the Fed's rate hiking policy impacted smaller companies disproportionately more than their larger counterparts over the last few years, and with rates set to come down over the next several months, this is a trend that would be welcome.
What We're Reading
- The $84 Trillion Elephant in the Room- Ben Carlson
- Six Months Into Tarriffs, Businesses Have No Idea How to Price Anything- WSJ
Have a great weekend.
Dogwood Wealth Management