Happy Friday!
Consumer spending, steady jobs and falling inflation give investors hope for a soft landing and an interest rate cut. Martian water…an important discovery, but too deep to do much about it…for now. 2024 Paris Olympic wrap up and gold medal inflation!
#1 – Weekly Market Recap
The three major US stock indices had a strong week as consumer spending, steady jobs and falling inflation give investors hope for a soft landing and an interest rate cut. The S&P 500 rose for six consecutive days and is up +3.7% through yesterday’s market close. The Nasdaq and the Dow Jones added +5.2% and +2.7% respectively.
Inflation data released Monday and Tuesday indicated that both consumer and producer inflation continues to fall closer to the Fed’s target range, with consumer inflation falling to its lowest level in three years. Wednesday’s unemployment data provided investor relief from the concerns that last month’s rise in unemployment doesn’t appear to be accelerating higher. Yesterday, retail sales showed that consumer retail spending in July advanced at the fastest rate since January 2023.
The combination of economic data pushed stocks higher throughout the week. The S&P 500 is on pace for its best week of 2024, and is now only +2% away from setting new all-time highs.
#2 – Historical Volatility Stress and Opportunities
The “VIX” Volatility Index, or what is also known as the “fear index,”, rose significantly this week. Last Friday, the VIX closed at 23. It almost tripled to a high of 65 on Monday morning. However, this morning the VIX fell back to 23. During the week, the S&P 500 had its largest one-day selloff — and then its largest one-day rally — over the past 2 years. Now that’s volatility!
Investors may be wondering how the stock market historically performs following volatility spikes. We analyzed data going back to 1990 and found 89 days when the VIX rose above 30.
The table below shows S&P 500 performance for the month leading into the volatility spike, the S&P 500’s return on the day of the spike, and the S&P 500 performance in the ensuing week, month, quarter, half-year, and year after the spike.
Producer Price Inflation (PPI), which tracks changes in sales prices for domestic producers, was lower than anticipated for July at +0.1% versus the +0.2% expected rate. PPI has risen only +2.2% over the last year with core PPI, which was unchanged in July, up +2.4% over the past year.
The continuing softening inflation data is leading investors to anticipate the Federal Reserve cutting interest rates for the first time since March 2020 at their next meeting in September.
#3 – Martian Water
Data from NASA’s retired InSight mission has revealed a vast underground reservoir of water deep within Mars’ crust. The discovery, based on seismic data from the InSight lander, suggests enough water exists in the Martian crust to cover the planet with a 1-mile-deep ocean. The groundwater, trapped in tiny cracks and pores in rock, lies between 7 and 12 miles beneath the surface, presenting significant challenges for future astronauts seeking to access it.
The study, published in the journal Proceedings of the National Academy of Sciences, highlights the importance of understanding Mars’ water cycle to unravel the planet’s geological history and climate evolution. Vashan Wright, the study’s lead author and a geophysicist at UC San Diego, emphasized that identifying water locations and quantities is crucial for understanding Mars.
Mars, once a warmer and wetter world, lost its atmosphere over 3 billion years ago, leading to the disappearance of its surface water. While some water is present as ice at the polar caps, this does not account for all the planet’s lost water. The new findings suggest that water filtered down into the Martian crust, forming deep aquifers within volcanic rock.
InSight’s seismometer, which detected over 1,300 marsquakes, provided data that scientists used to model the rock physics of Mars’ interior. The results indicated that the seismic waves matched a layer of igneous rock saturated with liquid water. This discovery adds a new dimension to the search for life on Mars, as similar underground environments on Earth are known to harbor life.
Despite the excitement, accessing this water poses significant challenges due to its depth and the resources required for drilling on Mars. Nonetheless, this finding offers a promising new target for future exploration and a deeper understanding of Mars’ geological and climatic history.
Source: CNN
#4 – Olympic Gold
The 2024 Paris Summer Olympics ended last Sunday. The final day of competition was capped off with the US Women’s basketball winning a nailbiter versus France to secure their eighth straight Olympic Gold.
This win secured the US’s 40th gold medal in Paris, tying China for the most gold medals won by any country this year. The 40 gold medals ties for the 6th best US gold medal performance in the post-war era (note that the US won 83 gold medals during the 1984 Olympics, but these games were boycotted by the USSR and broader Soviet Bloc).
With the 40 medals won in Paris, the US has won the most gold medals in 7 of the last 8 Summer Olympics. As a percentage, the US won 12.2% (40/329) of the total gold medals available in Paris. Although this seems like an impressive feat, it was only the 16th best “gold medal win rate” for the US over the last 20 Olympics.
Believe it or not, there has been “gold medal inflation.” The 329 gold medals awarded in Paris this year are more than double the 148 golds medals awarded in 1948. This is because new competitive events are added to the Olympics over time, so more gold medals are awarded (think breakdancing!).
As shown in the chart below, “gold medal inflation” has increased to the tune of around 4% per Olympics. 2024 was just the second time there has been “gold medal deflation” as the addition of “breaking” and kayaking didn’t overcome the removal of baseball, softball, and karate.
Any way you analyze it, winning a gold medal is an amazing accomplishment and symbolizes that the gold medal winner is simply “the best in the world!”
Have a great weekend!
Denver and the DSG Capital Advisors Team