Markets Weekly August 17, 2024

Summary

In this Markets Weekly update, the host discusses the market's strong performance, attributing it to positive economic data and a reduced fear of recession. They delve into Kamala Harris's economic proposals, including housing subsidies and controversial price controls, and their potential impact on inflation. The surge in gold prices is also analyzed, with the weaker dollar and global rate cuts being the likely drivers.

Takeaways

• 📈 The markets had a strong week, with the S&P 500 recovering from panic selling and experiencing a vertical surge, which is considered uncommon and a reason for caution.
• 📊 Positive economic data contributed to the market surge, including benign PPI and CPI inflation figures, suggesting a reduction in recession concerns.
• 💹 The Federal Reserve (FED) is likely to cut rates in September, as inflation seems to be heading towards the 2% target, with the market pricing in multiple cuts for the rest of the year.
• 🛍️ Retail sales data and Walmart's earnings report indicated strong consumer spending, which is a positive sign for the economy and reduces recession fears.
• 🏠 Kamala Harris proposed a $25,000 subsidy for new home buyers and potential price controls to address inflation, which could stimulate demand but may not address supply constraints effectively.
• 🏦 Price controls have historically led to shortages and worsened inflation, as seen in examples from Roman Emperor Diocletian to President Nixon and contemporary Venezuela.
• 🌐 The weakening dollar seemed to be the main driver behind gold's surge to new all-time highs, as a result of the market pricing in substantial rate cuts by the FED.
• 🌍 Geopolitical risks, while present, do not appear to be the primary driver for gold's price movement, as recent developments suggest some de-escalation in conflicts.
• 📉 The market's reaction to Harris's economic proposals is uncertain, but historically, such measures have led to stagflation, shortages, and higher prices.
• 📊 Gold prices are influenced by various factors, including monetary policy, geopolitical risks, and trend-following behavior, with the weaker dollar being a clear factor in the recent surge.
• 🔮 The speaker is positive on gold for the coming years, noting its potential volatility but also its traditional role as a hedge against inflation and economic uncertainty.

Q & A

What was the significant event in the markets during the past week mentioned in the script?

The significant event was the surge in the markets every single day, with the S&P 500 completely wiping out the panic selling from the first two weeks of August.

Why is the recent vertical move in the markets considered uncommon and a reason for caution?

The vertical move is considered uncommon because such sharp and rapid increases are not typical in markets, and it could indicate an overreaction or a lack of stability, hence the reason for caution.

What economic data contributed to the upward surge in markets according to the script?

The data included benign PPI and CPI inflation figures, which were lower than expected, indicating disinflation and reducing concerns of a US recession.

How did the market react to the inflation data, and what does it imply for the Federal Reserve's actions?

The market reacted positively to the inflation data, as it confirmed that inflation is heading towards the Federal Reserve's target of 2%, implying that the Fed is likely to cut rates in September.

What is the market's current expectation regarding the Federal Reserve's interest rate decisions?

The market is pricing in a September rate cut and expects around 100 basis points of cuts throughout the rest of the year, with some probability of a 50 basis point cut.

What recent economic indicators suggested less concern for a US recession?

Economic indicators such as higher retail sales on a month-over-month basis, Walmart's earnings report guiding for high revenues and higher profits, and benign unemployment claims data suggested less concern for a US recession.

What are Kamala Harris's proposed economic policies discussed in the script?

Kamala Harris proposed a $25,000 subsidy for new home buyers and the possibility of federal price gouging laws, which could include some form of price control to address inflation.

How could the proposed $25,000 housing subsidy impact the housing market?

The subsidy could stimulate home construction and boost demand, but it might also drive house prices higher due to the sudden increase in demand without an immediate corresponding increase in supply.

What are the historical implications of price controls as discussed in the script?

Price controls have historically led to shortages, inflation, and economic instability, as seen in examples from the Roman Empire, the US under President Nixon, and Venezuela.

What was the recent surge in gold prices, and what could be the driving factor?

Gold prices surged to new all-time highs, likely driven by the weaker US dollar, as the market is pricing in substantial rate cuts by the Federal Reserve.

What is the potential impact of price controls on supply and demand dynamics?

Price controls can limit the increase in supply by restricting the profits businesses can make, which can exacerbate shortages and worsen inflation.