U.S. stocks closed mixed on Friday, 11th August 2023, with the Dow rising while the S&P and Nasdaq experienced declines.
On Friday, U.S. producer price data surpassed expectations, contrasting with the better-than-expected consumer price index data announced on Thursday.
Additionally, the University of Michigan’s Consumer Inflation expectations unexpectedly declined in early August. According to the preliminary August reading, Americans anticipate a 3.3% increase in prices over the next year, a slight decrease from the 3.4% forecasted in July. Moreover, they project a 2.9% rise in costs over the next five to ten years, compared to the previous month’s 3%.
Although the monthly PPI figures exceeded estimates, downward revisions to the previous month’s data moderated some of the strength. Nonetheless, certain areas of concern were highlighted in the report.
As a consequence of the PPI report, bond yields surged, leading to a decline in mega tech stocks. Notably, NVIDIA closed down 10% from the highs established during the AI frenzy.
For the week, the Dow Jones Average scored a 0.6% gain, while the S&P edged 0.3% lower and the Nasdaq Composite lost 1.9%, marking its biggest back-to-back weekly loss since December.
Here are the closing levels for Friday, 11th August 2023:
| Last | Change | %Change | |
| Dow Jones | 35,281.40 | +105.25. | +0.30% |
| S&P 500 | 4,464.05 | –4.78 | –0.11% |
| Nasdaq Comp. | 13,644.85 | –93.14 | –0.68% |
| U.S. 10Y | 4.15% | ||
| VIX | 14.84 | -1.01 | -6.37% |
The market continues to display volatility, characterized by buyers capitalizing on dips and bulls striving to fend off sellers. In recent days, we’ve witnessed the market’s gains of nearly 1% being reversed twice, which does not bode well for bullish sentiment.
It raises questions about the effectiveness of the buying-on-dips strategy that has proven successful this year. Commentators are pointing towards an overbought market, a sentiment that appears to be justified. One-sided positioning has persisted for an extended period, making adjustments seem plausible.
The central question remains: will investors finally begin to heed the data? Will they acknowledge the potential downsides of higher interest rates? Are they prepared to relinquish the hope of a swift pivot from the Fed?
Bill Gross, once regarded as the bond king, contends that both stock and Treasury markets are “overvalued.”
Gross, the former chief investment officer of Pacific Investment Management Co., conveyed to Bloomberg Television that the 10-year Treasury yield’s fair value lies around 4.5%, in contrast to its current level of 4.15%. He emphasizes, “The decline in the equity risk premium, which gauges the difference between the earnings yield on the S&P 500 and the prevailing rate on 10-year Treasury notes, indicates that stocks are becoming overvalued relative to bonds.”
To be fair, many, including myself, have been anticipating a selloff for quite some time, yet our predictions have proven incorrect. Nevertheless, the recent market movement could potentially mark the onset of the correction we have been cautioning about. While the S&P remains slightly above the 50-day moving average, the Nasdaq has already dipped below it—a negative sign.
The failure to mount a robust rebound has left some bulls concerned. However, the recent selling appears somewhat excessive, hinting at the possibility of an imminent bounce. A substantial rebound might deter certain sellers or, alternatively, attract a new cohort of investors who engage in selling during rallies.
Source: CBOE, Bloomberg
This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years.
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