Research Summary
This report provides a comprehensive analysis of the current economic landscape, focusing on market recaps, macroeconomic indicators, earnings recaps, and future projections. It discusses the impact of inflation on savings, the performance of various sectors during the earnings season, and the potential implications of future Federal Reserve actions. The report also highlights the state of global equities and commodities, particularly aluminum, and provides insights into the health of the consumer market.
Key Takeaways
Market Recap and Global Equities
- August Market Performance: Despite alternating weeks of gains and losses, August ended in the red for both US and global equities. Rising bond yields due to potential inflation resurgence were a significant factor.
- Global Equities: Global equities experienced a sell-off, with India being an exception despite negative news about the Adani group.
- Federal Reserve’s Role: The market is divided over whether the Federal Reserve will implement another rate hike in November.
Commodities and Inflation
- Aluminum Prices: Aluminum prices have been on a downtrend due to falling demand levels, particularly from the Chinese construction sector. However, traders are betting on a price increase due to lower stockpiles and expected demand return.
- Inflation Impact: Inflation has eroded savings as everyday costs increase. The excess savings accumulated during the pandemic are dwindling, and the personal savings rate has decreased.
- Consumer Behavior: Despite higher rates and potential economic slowdown, people are not saving as much, possibly due to inflation or a lack of perceived need for savings.
Earnings Recap and Future Projections
- Earnings Season Performance: The S&P 500 reported a decline in earnings of -4.1%, marking the third consecutive YoY decrease. Inflation remains a hot topic, with 288 mentions.
- Market Valuations: Despite sell-offs, market valuations remain high, with the S&P500 running at 20x P/E. Traders and investors will need to identify outperforming companies in H2 to justify these valuations.
- Future Projections: The market is absorbing the idea of one more rate hike and a slight resurgence in inflation. However, growth concerns persist, particularly in Europe and China.
Actionable Insights
- Monitor Inflation: Keep a close eye on inflation trends and their impact on savings and consumer behavior.
- Commodity Market: Pay attention to the commodity market, particularly aluminum, due to its potential price increase.
- Investment Strategy: Adjust investment strategies based on market valuations and the performance of companies in H2.
