August 2024 left deep marks on the charts of many share indices. The SMI® was among those to reveal a striking V-shaped movement. On the first three trading days in August, the leading Swiss index shed up to 865 points, or around 7%. By the end of the month, though, the 20 large caps were priced about 100 ticks above the closing rate on 31 July. So what happened? One of the triggers for the global stock market correction was the dreaded “R” word, as the start of August brought fears of a recession in the USA. This was based primarily on the figures from the labour market, with only 114,000 new non-farm jobs being created in the United States in July 2024. This contrasted with economists’ average expectation of 175,000 additional jobs, Reuters said. Another alarm signal was sent by the unemployment rate, which unexpectedly surged to 4.3% in the month under report, its highest value since October 2022.
The shock at the stuttering US jobs motor mutated astonishingly quickly into renewed hope. The prospect of a turnaround in US interest rates strengthened over the course of the month. This collective expectation was underpinned by Jerome Powell at the central bank meeting in Jackson Hole on 23 August, when the Fed chairman gave a clear indicator of a change in rates after the summer break. “The time has come for monetary policy to adjust,” he said in the Rocky Mountains. The direction of travel was clear, Powell added with an eye on the hoped-for rate cut. The Fed will gather for its next meeting on 18 September. The markets believe it is a foregone conclusion that the next day will see the Open Market Committee adjust the key rate down for the first time since March 2020. The likelihood of a 25 basis point cut to the new range of 5.00% to 5.25% is put at 71%. According to the CMF FedWatch Tool, a reduction of 0.50 percentage points is estimated at 29%. (As at 02.09.2024)
Like monetary policy, geopolitics too made huge waves in August. While the escalation of the conflict in the Middle East unsettled investors, the election campaign in the USA triggered astonishment. As is well known, President Joe Biden decided not to run as the Democratic candidate against the Republican challenger, Donald Trump. In his place the party put Vice-President Kamala Harris in the race. Accompanied by a great deal of celebrity support and a high level of donations, her nomination has really put the polls into reverse. Until Biden’s withdrawal on 21 July, Trump was ahead, but at the start of September the RealClearPolitics portal gave Harris a vote share of 48% based on an average of all polls, with Trump scoring 46.2%. Some 9 weeks before the country goes to the ballot box on 5 November, nothing has been decided. Polling figures in the battleground states such as Arizona, Nevada and Pennsylvania make them particularly hard to call.
There is still plenty of tension in both areas. The US central bank is particularly likely to take a close look at the latest labour market figures ahead of its meeting. The government publishes the August 2024 report on 5 September. According to Reuters, the consensus is for 165,000 new non-farm jobs. The unemployment rate is set to have shrunk to 4.2%. Exactly one week before the decision on interest rates, the U.S. Bureau of Labor Statistics releases the inflation data for the previous month. A fall in inflation – it came to 2.9% in the year to July – towards the 2% figure targeted by the Fed would be positive for the stock markets. Between these two dates comes the first TV duel between Kamala Harris and Donald Trump on 10 September. Given this uncertain picture, renewed turbulence on the markets is certainly possible. Nevertheless, the V-shaped pattern in August has shown that setbacks can also offer opportunities for entry. Courage, of course, and good timing in particular are essential in order to take advantage of such price dips.
August 2024: Reuter consensus; source: Reuters, U.S. Bureau of Labor Statistics; as at: 02.09.2024