S&P 500 Recovers After Getting Rattled By Japan's Carry Trade Noise Event
The S&P 500 (SPX) got rattled on Monday, 5 August 2024, losing a full three percent of its value in a single day.
That's not a typical day for the index. Before 5 August 2024, there have been just 140 declines greater than 2.94% from previous trading day's closing value recorded since 3 January 1950. Now there are 141.
And yet, after all that sound and fury to start the week, the S&P 500 had almost fully recovered all that it had lost by the end of the week, as if the index had simply gone mostly sideways during the trading week that was. The index ended the trading week at a level of 5,344.16, just 2.4 points less than where it closed the previous week.
The big story of the week came out of Japan, when the combination of the BOJ's surprise rate hike combined with bad jobs data in the U.S. to start unwinding the "carry trade" based on the difference between Japan's low interest rates and higher rates everywhere else.
Markets went on to recovered after the Bank of Japan quickly backed off its plans to continue hiking rates to fight inflation developing in Japan. Although it took the rest of the week, as shown in the latest update of the alternative futures chart.
Although the trajectory of the S&P 500 briefly deviated from it in what we'll call the Japan carry trade noise event, the chart indicates stock prices recovered enough to continue falling within the range associated with investors focusing on the distant future quarter of 2025-Q2.
Investors absorbed quite a bit more information than that during the trading week ending Friday, 9 August 2024. Here are the week's marking moving headlines:
Monday, 5 August 2024
- Signs and portents for the U.S. economy:
- Fed minions expected to deliver bigger, more frequent rate cuts, but claim no recession is coming, issues new guidance for failing banks:
- Mixed economic picture, much bigger stimulus developing in China:
- BOJ minions starting to have second thoughts about its rate hike:
- Bigger trouble developing in the Eurozone:
- Nasdaq, S&P, Dow plummet as recession worries grow
Tuesday, 6 August 2024
- Signs and portents for the U.S. economy:
- Fed minions expected to start cutting interest rates as expected in September 2024:
- Mixed economic signs developing in China:
- BOJ minions not getting data they want:
- Japan stock market rebounds, but danger remains:
- S&P, Nasdaq, Dow finish higher following rout fueled by recession fears
Wednesday, 7 August 2024
- Signs and portents for the U.S. economy:
- Bigger trouble developing in China:
- BOJ minions in damage control:
- ECB minions willing to keep cutting rates if inflation continues to fall in Eurozone:
- Dow, S&P, Nasdaq fall as rebound effort loses steam, 10-year note auction disappoints
Thursday, 8 August 2024
- Signs and portents for the U.S. economy:
- Fed minions say they'll cut interests on their schedule, not the stock market's, but they'll be in a cutting mood soon:
- Collapsing yen pauses while BOJ minions consider next steps and the loss of their credibility:
- Nasdaq, S&P, Dow end higher as fall in jobless claims becalm recession fears
Friday, 9 August 2024
- Signs and portents for the U.S. economy:
- Bigger trouble, bond market bailout developing in China:
- S&P ends wild week largely flat as benchmark index rebounds strongly from 3% plunge
The CME Group's FedWatch Tool projects the Federal Reserve will continue holding the Federal Funds Rate steady in a target range of 5.25-5.50% until 18 September (2024-Q3). On that date however, the FedWatch tool is now giving a little over 50% chance of a quarter point rate cut and a little under 50% chance of a half point rate cut, which is consistent with the expectation the U.S. economy may be in for a harder landing than previously anticipated. After September 2024, the FedWatch Tool projects quarter point rate cuts at roughly six week intervals well into 2025.
The Atlanta Fed's GDPNow tool's forecast for 2024-Q3's real GDP growth rate rebounded to +2.9% from the +2.5% figure it recorded a week earlier.
Image Credit: Microsoft Copilot Designer.. Prompt: "An editorial cartoon of a Wall Street bull and a bear looking at each other, with one of them asking 'What was that all about?'"
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