In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten. –– Peter Lynch

1. Fitch Downgrades U.S. Credit Rating — the downgrade, the first by a major ratings firm in more than a decade, is evidence that increasingly frequent political skirmishes over the U.S. government’s finances are clouding the outlook for the $25 trillion global market for Treasurys. Fitch’s rating on the U.S. now stands at “AA+”, or one notch below the top “AAA” grade. America’s reputation for reliably making good on its IOUs has cast Treasury bonds in an indispensable role in global markets: a safe-haven security offering nearly risk-free returns. Treasurys serve as a critical benchmark for returns on stocks and other bonds, because investors generally demand greater yields on any other securities that they buy.
2. Warren Buffett Is Buying Treasuries Regardless of US Downgrade by Fitch — “Berkshire bought $10 billion in US Treasuries last Monday. We bought $10 billion in Treasuries this Monday. And the only question for next Monday is whether we will buy $10 billion in 3-month or 6-month” T-bills, Buffett said on CNBC. “There are some things people shouldn’t worry about,” he said. “This is one.” Fitch cut the US’s sovereign rating to AA+ from AAA earlier this week, citing the nation’s growing deficit and increasing political brinkmanship around the periodic efforts needed to raise the debt ceiling. The timing was apt — less than 24 hours later, the government boosted its quarterly borrowing plans for the first time in two-and-a-half years.
3. US Wage Growth, Lower Unemployment Underpin Solid Jobs Market — US employment increased at a solid pace in July while wages rose at a faster-than-expected clip, consistent with sustained labor demand that’s at the root of renewed momentum in the economy. Nonfarm payrolls increased 187,000 last month following a similar advance in June, a Bureau of Labor Statistics report showed Friday. The unemployment rate unexpectedly dropped to 3.5%, one of the lowest readings in decades. Average hourly earnings were up 0.4% from June and 4.4% from a year earlier, both stronger than forecast. That said, pay growth has been showing signs of slowing, as the supply and demand for workers comes more into balance following years of pandemic-induced labor shortages.

Here is a summary of the stock market last week (August 1-5, 2023):

The S&P 500 fell 1.9% for the week, marking its fifth consecutive weekly decline.
The Dow Jones Industrial Average fell 1.6%, and the Nasdaq Composite fell 2.3%.
The declines were driven by concerns about inflation and the pace of interest rate hikes by the Federal Reserve.
On Tuesday, ratings agency Fitch downgraded the U.S. credit rating from AAA to AA+, citing concerns about the country’s high debt levels.
On Friday, the U.S. Labor Department released its monthly jobs report, which showed that the economy added 187,000 jobs in July, below expectations.
The report also showed that wage growth remained strong, which could add to inflationary pressures.
Despite the declines, there were some positive signs last week.
Earnings season continued to be strong, with 84% of the companies in the S&P 500 reporting earnings that beat analyst expectations.

The week ahead — Economic data from Econoday.com:

Posted in Weekly Summary | No Comments »