CWS Market Review – September 3, 2024
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“The expectation of an event creates a much deeper impression on the exchange than the event itself.” – Jose de la Vega, 1688
On Friday, the S&P 500 closed out August with a gain of 1.01%. It’s interesting that last month turned out to be a decent month for the market. For a while, it didn’t look that way.
From July 16 until August 5, the stock market had a minor dustup. Of course, we didn’t know it was going to be minor at the time.
What I find interesting is that if you had only paid attention to the stock market’s monthly closing price, you would have had no idea that at one point, the stock market dropped more than 8% this summer.
Ignoring the sound and fury of the daily market not only makes you a better investor, but it also gives you a better sense of what the market is really doing.
The recent monthly data has been entirely uninteresting. For August, the S&P 500 gained 2.28%. This was the index’s fourth monthly gain in a row, and its ninth gain in the last ten months.
This has been a very good time for individual investors. JPMorgan said that stocks currently make up 42% of Americans’ total financial assets. That’s the highest on record since 1952. Fidelity said that the number of its 401k accounts worth more than $1 million is up 31% in the last year.
Will the good times last?
It’s true that historically, Labor Day has marked a change in sentiment on Wall Street. Traditionally, September and October have been weak months for the stock market. We’ve even had some of our worst markets in history come at this time of year. I’m not sure why. Perhaps traders are eager to take profits after a strong summer rally.
This year, it didn’t take long for September to get off to a slow start. The market had a lousy day today. The Dow was off more than 600 points, and the Nasdaq was down over 3%.
Today’s trading is also a good example of how Nvidia has come to dominate the entire market. The tech giant opened lower, and it pulled nearly the entire tech sector with it. At its low, NVDA was down more than 10% today.
It seems like every day, NVDA calls the tune. If it rallies, a mass of growth stocks rallies in its wake. But on a bad day, like today, NVDA is one of the worst performers in the S&P 100, and many others will get pulled under, too. The market is the east and Nvidia is the sun.
Over the last four trading sessions, shares of NVDA have lost roughly one-sixth of their value. That’s half a trillion dollars. For today, I suspect it’s a case of some NVDA longs looking for a good chance to book some very nice gains.
This was an unusual trading day because outside tech, most defensive stocks had a quiet day. In fact, many defensive stocks posted decent gains today and more than a few, like Walmart, Coca-Cola and Stryker, made new 52-week highs today.
The S&P 500 High Beta Index was down over 4.2% today while the S&P 500 Low Vol Index was up 0.04%. The Nasdaq lost almost as many points as the Dow did today, despite having less than half the nominal point value.
There’s not much news from Wall Street at the moment, but that will change soon. This Friday, we’ll get the jobs report for August. In the July report, the unemployment rate reached a 33-month high.
After the jobs report, we’ll get the CPI report for August the following Wednesday, which is the 11th. To be fair, the inflation numbers have improved but at a very slow rate.
We’re now two weeks away from Rate Cut Day. This day has been three years in the making. This is when the Federal Reserve will finally lower interest rates.
There’s little doubt that the Fed will cut rates. The only question is, by how much? Going by prices in the futures pits, traders think there’s a 63% chance of a 0.25% and a 37% chance of a 0.50% cut. The odds of the Fed doing nothing are at 0%. I’m not exaggerating.
We still have data coming in. On Friday, the Commerce Department said that the personal consumption expenditure price index, or PCE, rose by 0.2% last month which matched expectations. This is important because it’s the Federal Reserve’s preferred measure of inflation. Over the last year, the PCE Index has increased by 2.5%.
The core PCE, which doesn’t include food or energy prices, was also up by 0.2% last month, and also matched expectations. Over the past year, the core PCE is up 2.6% (see above).
Core prices less housing, another key metric for the Fed, increased just 0.1% on the month. As other inflation components ease, shelter has proven to be stubborn, again rising 0.4% in July, according to Friday’s report.
Elsewhere in the report, the department’s Bureau of Economic Analysis said personal income increased 0.3%, slightly higher than the 0.2% estimate, while consumer spending rose 0.5%, in line with the forecast. Spending continued at a solid clip even though the personal savings rate fell to 2.9%, the lowest since June 2022.
From a component standpoint, inflation changed little over the past month. The BEA said that goods prices fell by less than 0.1% though services increased 0.2%.
On a 12-month basis, goods also were off by less than 0.1%, while services jumped 3.7%. Food prices were up 1.4% and energy accelerated 1.9%.
One weak spot today was the ISM Manufacturing report. I tend to favor the ISM report for a few reasons. One is that it’s a survey, so it’s not specifically placed on economic activity. I also like that the report comes early, usually on the first business day of the month. So much econ data is lagging.
The ISM also tends to line up well with recessions. Whenever the ISM Manufacturing Index dips below 45, then there’s a good chance that we’re in a recession.
This morning, we learned that the ISM for August came in at 47.2. Any number below 50 indicates that the economy is contracting; above 50 and the economy is expanding. Today’s report was below expectations which were for 47.9. The ISM for July was 46.8.
The weak July report, which came out in early August, helped cause the market to have a minor downdraft this summer. We’ve recovered most of what we lost, but not all of it.
Stock Focus: Winmark (WINA)
This week, I wanted to tell you about a fascinating small-cap company called Winmark Corp. (WINA). It has a market value of $1.25 billion and it’s only followed by one analyst on Wall Street.
I’m not recommending it, but it’s an interesting company to put on your radar screen. The company franchises five different types of retail stores: Style Encore, Plato’s Closet, Once Upon a Child, Play It Again Sports and Music Go Round.
While the stores are different, they share a common theme: they buy and sell slightly-used merchandise. Winmark also provides leasing for its business partners.
Since March 2000, the stock is up more than 13,000%.
Because of the company’s unusual structure, they do about $80 million in sales despite having about 85 full-time employees.
From 2000 to 2016, Winmark was led by John Morgan, who turned the ship around. It’s difficult to describe Winmark. I suppose it’s like what eBay would be if they had stores.
WINA looks rather pricey at the moment but it’s worth following.
That’s all for now. I’ll have more for you in the next issue of CWS Market Review.
– Eddy