Market Update

Weekly Market Recap
This week’s market activity was marked by significant volatility, with a sharp sell-off early in the week followed by a robust recovery, erasing much of the earlier losses.
Key Driver: Yen Carry Trade Unwinding
A major factor behind the initial downturn was the unwinding of the Japanese yen carry trade—a strategy where investors borrow yen to invest in higher-yielding assets like stocks and bonds. This trade, fueled by Japan’s historically low interest rates, came under pressure last Wednesday when the Bank of Japan raised interest rates for the second time this year. This move strengthened the yen, altering the carry trade’s dynamics and sparking global market adjustments.
US Market Performance
The S&P 500 faced a steep decline early in the week, approaching correction territory, before staging a strong recovery. Thursday saw one of the index’s best single-day gains since November 2022, helping it end the week only modestly lower.
This week’s volatility highlights the intensity of short-term market fluctuations, but it also demonstrates their often temporary nature. Year-to-date, the S&P 500’s total return stands at nearly 12%, supported by a 2.8% Q2 GDP expansion—a significant improvement from 1.4% in Q1 2024. These metrics reinforce the underlying strength of the US economy.
Economic Data and Fed Outlook
While the week was relatively light on economic data, the available reports played a stabilizing role:
Weekly Jobless Claims fell by 17,000 to 230,000 for the week ending August 3rd, easing fears of a sharp labor market deterioration.
Investor concerns about the Federal Reserve’s response to slowing labor data softened, with attention shifting to the upcoming Jackson Hole Economic Symposium.
Scheduled for late August, the symposium will feature insights from economists, policymakers, and financial market leaders. Federal Reserve Chair Jay Powell is expected to provide guidance on the future trajectory of interest rates, which could help ease lingering investor uncertainties.
International Markets
China:
China’s Consumer Price Index (CPI) rose to a five-month high of 0.5% year-on-year in July, up from 0.2% in June, driven partly by weather-related disruptions affecting food supplies. This unexpected rise has injected some optimism into the market, with the Hang Seng Index closing the week up 0.85%, underscoring the value of geographic diversification in portfolios.
Ireland:
On the production front, Ireland’s manufacturing output dropped by 4.6% in June compared to May. However, production increased 6.2% over the three-month period from April to June, suggesting resilience despite monthly fluctuations.
Upcoming Economic Data
Looking ahead, several critical reports are set to provide further insights into economic trends:
US: Producer Price Index (PPI), retail sales, and inflation data.
UK: Retail sales, inflation figures, and preliminary Q2 GDP estimates.
China: Industrial production and retail sales figures.
These releases, alongside developments from the Jackson Hole Symposium, are expected to shape market sentiment in the coming weeks.
Summary
Despite a choppy week in markets, the underlying fundamentals of the global economy remain robust. The combination of strong US economic performance, diversification benefits from international markets, and improving inflation trends offers a reassuring backdrop for long-term investors. While short-term volatility can be unsettling, staying the course and focusing on long-term objectives remains key.