US stocks see best week of 2024, global attention focused on Jackson Hole Conference

Intelligent Finance APP noticed that the stock market had its best week since 2024 as new economic data helped alleviate concerns about an economic recession. Last week, the S&P 500 rose by nearly 4%, the NASDAQ Composite Index rose by over 5.2%, and the Dow Jones Industrial Average rose by nearly 3%.

In the upcoming week, with a calm economic calendar, market focus will shift to the Federal Reserve as Fed Chair Powell is expected to speak on Friday morning at the Jackson Hole Symposium. Investors will closely watch for hints on when the Fed plans to cut rates in 2024 and the extent of the rate cut.

On the corporate front, retail earnings reports will continue to be a focus, with companies such as Lowe's (LOW.US) and Target (TGT.US) expected to announce their performance.

All Eyes on the Fed

This week, strong economic data played a key role in the stock market rebound. Weaker-than-expected job reports had intensified concerns about an economic recession, but this week's data helped calm investors.

The latest data shows that the inflation rate continues to decline towards the Fed's 2% target, while consumer spending remains stable and layoffs have not increased.

In summary, economists and Wall Street strategists believe that this week's data indicates that the much-touted soft landing (the U.S. economy avoiding a sharp downturn, with inflation falling to the Fed's 2% target) is back in focus.

Michael Gapen, head of economics at Bank of America Securities, wrote in a report to clients last Friday: "This week's data was dense, mostly good news. Inflation remains moderate overall, and economic activity still looks healthy. The recent data flow is consistent with our soft landing forecast."

This week's economic data performance is flat, which is unlikely to change this situation. However, Fed Chair Powell's speech at the Jackson Hole Symposium could alter market expectations for rate cuts.

"The easiest thing for Chair Powell to do is to repeat his remarks from July," Gapen wrote. "The change in FOMC language in July suggests the committee is 'very close' or 'close' to levels that could implement accommodative policies. A more moderate signal may indicate the committee wants to avoid 'unexpected softness' in the labor market rather than reacting after softness occurs."

As of last Friday, the market expected a 76% likelihood of a 25 basis point rate cut by the Fed before the end of the September meeting. A week ago, the market expected a probability of over 50% for a further 50 basis point rate cut by the Fed.

Market Sentiment Stabilizes

After two weeks of market volatility, the S&P 500 index has returned to near its historical highs. Tech stocks have surpassed recent market lows and led the market higher in the past few trading days. With the Fed rate cut looming, strategists are generally satisfied with the overall trend of the U.S. economy Overall, as of mid-August, the market seems to have returned to the level at the beginning of the month. However, after experiencing the most severe sell-off since 2024, some strategists believe that the current situation is somewhat different.

Drew Pettit, the Head of Equity Strategy for Citigroup in the United States, stated: "With the market pullback, especially a more significant pullback in the growth end of the market, the sentiment now appears more balanced than earlier this month."

Pettit's team uses an indicator called the Leuthold Group Index to determine market sentiment, which considers factors such as investors' short positions and leverage. The current reading is 0.31, below 0.38, indicating that the market has entered a period of exuberance or excessive stretching. As shown in the chart below, periods before the market enters a phase of exuberance typically see a decline.

This helps confirm the judgment of Citigroup's equity strategy team: there is still room for the stock market to rise this year. Citigroup expects the S&P 500 index to reach 5800 points by the end of this year. Given that sectors like technology have experienced the most severe pullback recently, Pettit mentioned that growth stocks "are looking increasingly attractive here".