The Data
Equities moved firmly higher last week.
S&P 500 +4.01%% Dow +2.60% Russell 2000 +4.30%, Nasdaq +5.95%.[1]
The All-Country World Index rose 3%.1
S&P 500 sub-sectors were mostly higher last week.
Consumer Discretionary & Technology led to the upside.1
Energy was the lone declining sectors with a loss of -0.49%.1
The CBOE Volatility Index (VIX) declined 26% to end at 16.56.1
US Treasury bond yields were lower last week.
US 2yr -0.09% at 3.57%, 10yr -0.06% to 3.66%, 30yr -0.05% to 3.98%.1
The yield curve continued to steepen as the 2yr declined more than the 10yr.
Commodities as an aggregate asset class was mostly higher last week.
WTI Crude gained +2.31%.1
Gold was rose +3.21%.1
The US Dollar index lost -0.07%.1
In our opinion, U.S. economic data was mixed last week.
The Small Business Optimism index fell in August which erased all of July’s gain.1
The Consumer Price Index measure of inflation was in line with expectations at +2.5%.1
The Producer Price index was down as well for August’s reading.1
An index of equities outside the US (FTSE All-World ex-US) gained +2.33%.1
Conclusion
Equities rebounded last week as the VIX fear gauge plummeted over 25%.
The growth oriented Nasdaq led all major indices higher with a gain of almost 6%.
The market-cap weighted S&P 500 bounced higher by 4% as a result of the tech overweight.
While the S&P 500 has bounced back before, this time has been unique as it isn’t being led by Big Tech
Despite last week, since the markets peaked in July, the equal-weight S&P is up +1.92% while the traditional S&P 500 index is down -0.50%.
The rotation has been aided by expectations for monetary policy easing.
We believe it could also be a testament to the improving outlook for profits in the rest of the market at a time when big spending by tech giants is raising concerns about their margins.
Whether it’s a blip or a longer-term trend, however, will likely rest on the path of the economy.
S&P 500 subsectors were all positive with the exception of Energy.
Energy has recently lagged by a large margin as fears of a global economic slowdown have picked up steam.1
While tech & consumer discretionary led to the upside last week, since July, the relatively defensive sectors of Utilities, Healthcare, Real Estate, & Staples have outperformed.
We view this less of a risk off signal and more of the fact that all areas of the market except the Magnificent 7 have been being bought.
US interest rates continued to decline last week across the yield curve.
The curve continued to steepen as the 2yr dropped at a larger pace than the 10 & 30yr.
The 2 year Treasury, which tracks closely expectations for Federal Reserve policy, continued it’s plummet.
The 2yr has dropped from a high of over 5% in April to 3.55%.
This reflects market expectations for a large amount of Federal Reserve rate cuts in 2024 and 2025.
The biggest news of the coming week will be around the Fed’s September meeting on Wednesday.
A rate cut is a foregone conclusion but swaps tied to the decision are split between a 0.25% reduction and a larger 0.50% one.
Currently, there’s a 50% probability of a larger rate cut which was 0% the previous week.
We believe the about turn in pricing over the past few sessions has raised the stakes for the meeting as investors are conflicted over how much policy support the economy needs, and what the Fed’s decision to kick off its easing cycle with a large cut would signal.
With Fed members in a blackout period before the Sept. 17-18 policy meeting, traders have few data points to rely on, including August retail sales on Tuesday.
Justin Greenhill - Chief Investment Officer – justin@sollinda.com
Ryan A. Mumy, CFP®, AIF® - CEO – ryan@sollinda.com
Phone: 844/662-1211
[1] Source: Bloomberg – 7/19/2024
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