August 2024’s Market Volatility Looms Amid Key Economic Data

Just a few days into August, the markets appear to be moving in different directions due to a plethora of key financial, political, and economic events generating notable market volatility and market jitters. 

Reviewing the past week, the main market movers during this period, and what to expect in the week ahead could help one better understand the shifting financial landscape.

Let’s dive in:

What Shifted the Markets Last Week?

Fed Meeting & Weaker Jobs Report 

Last week was very important for the US economy as the US jobs report was released following the Fed’s rate decision.

The Fed, which is still expected to cut rates this year, kept its benchmark rates unchanged yet again at a 23-year high as it watched for further signs of economic growth and rebound. 

In addition, last Friday, the US jobs data for July were released, showing signs of ongoing weakness. The reports showed that whereas economists were expecting 175,000 added jobs, in July, there were only 114,000 jobs added. Moreover, the unemployment rate surged to 4.3% from 4.1%, which is above expectations for it to stay steady. Accordingly, this data may have added to the concerns that the Fed could be waiting “too long to reduce interest rates.”

Given the less-than-rosy jobs report, perhaps unsurprisingly, the markets tumbled as key Wall Street indices slid. The tech-heavy Nasdaq (US-TECH 100) entered a correction zone and fell by 2.4%, while the S&P 500 and the Dow Jones Industrial Average (USA 30) plunged by 1.8% and 1.5%, respectively. (Source: CNN)

Tech Earnings & AI Uncertainty

Beyond the economic realm, last week, key financial earnings from leading companies, especially in the technology sector, took place and may have provided market watchers with much-needed insights into the state of the economy and financial markets. 

Results from tech giants such as Apple (AAPL), Microsoft (MSFT), Meta (META), and Amazon (AMZN) generally showed “‘strong growth.” However, this was not enough to push their stocks higher. Notably, e-commerce giant Amazon slid by about 9% on Friday, while Intel (INTC) fell by 25% that day.

These mixed results were attributed to increased fears and concerns among investors and traders regarding these companies' AI ventures and whether the substantial capital spent on AI will yield fruitful results in the near future. Some even wondered whether this is an “AI bubble” that has “burst” or not. 

For example, Morgan Stanley analyst Keith Weiss said that “right now, there’s an industry debate raging around the (capital expenditure) requirements around generative AI and whether the monetisation is actually going to match with that.”

While a Goldman Sachs’ report stated that GenAI is experiencing “too much spend, too little benefit.” Furthermore, Steven Ju, an analyst from UBS, asked Google’s CEO Sundar Pichai, how long it would take for AI to contribute to revenue generation and create greater value over time rather than just cutting costs.

Still, only time will tell what actually lies ahead for the market and companies investing in AI technology.

Additionally, the ongoing conflict in the Middle East, rising US-SINO tensions, and uncertainty surrounding the US elections have also affected the economy.

This Week’s Market Movers

VIX: The ‘Fear Gauge’ Rises 

Given the above, traders and investors may not be surprised to learn that the ‘fear gauge,' also known as the VIX Volatility Index (VIX), which hit a three-month high last Friday, continues to rise as market jitters persist.

The VIX, an index that measures market sentiment—or, more accurately, fear—has also gained about 44.8% as of the time of writing, Monday, 5 August.

According to some market experts like Steve Sosnick, “the fact that we had such a huge spike in volatility on Friday is emblematic of the end of a short-term negative move in the stock market.” Still, he added that this “doesn’t necessarily tell [us] about the long-term cycle.”

Asian Markets Fall

Besides the US markets, Asian stocks have made today’s headlines as Wall Street’s losses and weak jobs data induced fears of a possible recession in the world’s biggest economy, driving Asian markets downward as well.

The negative US reports had led to global sell-offs and bearish market sentiment, causing key Asian indices and stocks to tumble. On Friday, Japan’s Nikkei 225 (Japan 225) hit a record low (its lowest since the 2021 pandemic). These losses were extended to Monday as well and the index lost about 13%. Moreover, Asian tech stocks also took a hit with Samsung shares dropping by 7.7% on Monday.

The Week Ahead: What’s Next?

This week, some of the key events that may shift the abovementioned sentiment and the current state of the markets include the following releases and events, which traders and consumers may want to keep track of:

Earnings Reports

The following companies are expected to report their earnings this week:

• Tuesday, 6 August: Uber (UBER), Amgen (AMGN), and Airbnb (ABNB)

• Wednesday, 7 August: Disney (DIS), Shopify (SHOP), and CVS Health (CVS)

• Thursday, 8 August: Paramount Global (PARA) and Eli Lilly (LLY)

• Friday, 9 August: AMC Networks (AMCX)

Data from China, Australia, and the US

• In Australia, the Reserve Bank of Australia (RBA) is scheduled to announce its rate decision on Tuesday, August 6. Like the Federal Reserve, the Australian central bank is anticipated to maintain current interest rates, with market expectations suggesting a potential monetary policy easing by the end of 2024.

• In China, key economic data will be released throughout the week. It starts with a private-sector survey on services activity, followed by trade data on Wednesday and a consumer price index report at the end of the week.

• In the US, traders and consumers may be eagerly anticipating Thursday’s (8 August) initial jobless claims report, which is expected to indicate a slight change from the current one-year high. 

Additionally, following last week’s Federal Reserve decision, this week will feature speeches from key Fed officials, including San Francisco Fed President Mary Daly and Richmond Fed President Thomas Barkin.

All of these releases can provide further information about the state of the economy and market sentiment as we head deeper into August.

Conclusion

Overall, it seems that the current market volatility is driven by mixed economic signals and geopolitical tensions. 

Recent weak US job data and fluctuating tech earnings have spurred investor uncertainty, highlighted by the rising VIX Index. 

With key earnings reports and economic data due this week, markets remain jittery as they navigate these evolving challenges. Only time will tell what the future holds for the economy and the markets.