Jason's World

U.S. stocks recovered slightly on Friday but ended up down for the week as anxiety over the Federal Reserve turning more hawkish impacted investor sentiment. This anxiety is due to continued strength in the economy signaled by expansion in the consumer market according to the non-manufacturing PMI, and jobless claims coming in below expectations and declining for the fourth straight week. 

The tech-heavy Nasdaq Composite finished +0.1% on Friday, as Apple (AAPL) tried to rebound after sliding more than 6% over the past two days amid headlines concerning China’s ban of iPhone use in government agencies. The Chinese ban of iPhones raised concerns about US-China tensions at a time when major companies like Apple continue to rely on China’s large private consumer market, the world’s largest by head count and the third largest by dollar amount. This lays bare the major difficulty that US and other Western politicians face in decoupling with China: regardless of how much the US relies on China for production, they will always have to rely on the Chinese consumer market for a large part of its revenue. 

Oil prices also weighed on stocks as Russia and Saudi Arabia, members of OPEC, extended production cuts. Brent futures rose to $90.44, to levels not seen since the end of 2022. West Texas crude oil rose to $87.51, the highest in six months. The increase in energy prices complicate the final throes of international central banks’ battles against inflation, at a time when investors have been increasingly confident that central bank rates have peaked. The upward price pressure on energy comes at a time when US strategic petroleum reserves reach a 40-year low from President Biden’s tapping of 180 million barrels of oil from the Strategic Petroleum Reserve, leaving the federal government with fewer options to deal with the potential surge in gas prices for American consumers. Commercial stockpiles of petroleum have been drained substantially compared to last year, with commercial inventories falling more than 20% from last year. Overall, the Nasdaq shed 1.9% for the week, reflecting the tech industry’s susceptibility to rate hikes. The S&P and the Dow shed 1.3% and 0.8%, respectively.

A major update on the inflation situation is once again on the horizon as the BLS releases its monthly report on the consumer price index (CPI) next Wednesday. The report is expected to show a large pickup in the monthly inflation rate from the month of July, with analysts forecasting a 0.6% monthly inflation rate for August, the highest monthly rate since June 2022. The annual rate is expected to be at 3.6% for August. This would represent a major setback in the Fed’s battle against inflation, and will add to the growing anxiety of investors about elevated interest rates.