Markets “In A Nutshell” for August 7, 2023

Markets “In a Nutshell” for August 7, 2023

Investment Week at a Glance

Stocks finished down for the week.  The Dow Jones Industrial Average fell 1.10%, the S&P 500 was down 2.30%, and the NASDAQ fell 2.80%. Foreign stocks (MSCI EAFE) were also down, falling 2.40%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 4.05%.  (Data source: Wall Street Journal)

U.S. Debt Downgrade

Fitch downgraded U.S. government credit as this is the 2nd credit downgrade in U.S. history. When Standard & Poor downgraded U.S. credit, the market declined 4.8% that day and another 6.5% four days later. The market reaction last week was much calmer as investors saw in 2011 that it did not have much of a long-term impact on markets and the economy. The concerns over U.S. debt are warranted however, the U.S. debt-to-GDP ratio has jumped from 60% in 2008 to 130% in 2020. Since 2020 the ratio has dropped to 118% but still remains high and a worry for the long-term as interest costs are rising due to higher rates. Eventually, this will need to be taken care of by a combination of tax hikes and spending cuts. Despite this, the U.S. Treasuries remain the world’s safest asset due to the liquidity and market depth to international investors.

Jobs Continue to Strengthen Economy

The job market has been the main reason the economy has been able to absorb higher interest rates as unemployment now sits at 3.4%. In July the economy added 187,000 jobs and wages grew at a faster rate than expected. While the labor market is showing signs of cooling, this report shows that it is cooling very slowly which supports the case for a “soft landing”. The wage growth continues to be a worry for the Fed as far as fighting inflation goes. Another rate hike remains on the table in September depending on the data that will come in. The July CPI reading will be released this week and will be a critical data point in the Fed’s decision. The Fed will hope the newest CPI report shows that inflation continues to come down as they had hoped.

Quiz:

Quiz

When was the last time unemployment has been this low in U.S. history? (Scroll Down for Answer)

1.     2006
2.     1996
3.     1973
4.     1969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Answer below.

 

 

Have a Great Week!

 

 

 

 

 

 

 

 

 

Answer:

4.    1969.  This is the lowest unemployment rate in the U.S. since 1969. There are currently 5.7 million people unemployed in the United States.