Why Is It So Hard to Make Decisions?

Stocks retreated last week as bond yields increased following the Treasury's announcement indicating “a larger-than-expected funding need” and a downgrade in the federal government’s debt rating.

The Dow Jones Industrial Average dropped 1.11%, while the Standard & Poor’s 500 shed 2.27%. The Nasdaq Composite index lost 2.85% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, tumbled 3.27%.^2,3,4

Stocks Struggle

Stocks struggled as investor sentiment turned cautious amid rising bond yields. Markets were rattled initially by news that the Treasury raised its borrowing requirement for the third quarter by more than a quarter of a trillion dollars and on news that the Bank of Japan announced it would allow bond yields to rise after years of capping them. 

Rising yields continued to pressure stocks in the wake of a surprise rating downgrade of U.S. government debt by a major credit rating agency due to its belief in expected fiscal deterioration over the next three years.

Stocks rebounded Friday morning, rising on modest employment data only to reverse and add to the week’s losses.
 

Mixed Signals from the Labor Market

Fresh employment data last week gave some conflicting signals about the labor market. A new JOLTS (Job Openings and Turnover Survey) report showed a small decline in job openings and layoffs in June, leaving 1.6 job openings for each available worker.⁵ 

Automated Data Processing’s (ADP) employment report reflected strong private sector hiring with a 324,000 increase in jobs, exceeding the consensus forecast of a 175,000 gain.⁶

The government’s monthly employment report saw a cooling in hiring as employers added 187,000 jobs in July. This was slower than seen in the first six months but enough to shave the unemployment rate from 3.6% to 3.5%.⁷

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^{1. John Hopkins Medicine, April 24, 2023}

^{2. The Wall Street Journal, August 4, 2023}

^{3. The Wall Street Journal, August 4, 2023}

^{4. The Wall Street Journal, August 4, 2023}

^{5. CNBC, August 1, 2023}

^{6. CNBC, August 2, 2023}

^{7. The Wall Street Journal, August 4, 2023}

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^{The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.}

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