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Perspectives

Is the Stock Market Broadening?

by Fortem Financial July 24, 2024

U.S. equity indexes were mixed last week with the market largely rotating out of big tech/momentum/growth into value/cyclicals/small caps. The S&P 500 Index was down (-1.95%); the NASDAQ fell (-3.65%); and the Russell 2000 Index was up (+2.33%). Themes included soft-landing hopes, expectations for a Fed rate pivot, and a surge in the “Trump trade.” Best sectors were energy (+2.06%), real estate (+1.32%), and financials (+1.19%); worst sectors were technology (-5.14%), communication services (-2.87%), and consumer discretionary (-2.68%).

 

  1. Initial jobless claims rose 20,000 in the last reporting week. While alarming at the headline level, Hurricane Beryl caused as much as half the increase. But the labor market is definitely weakening.
  2. The earlier in the month negative June CPI reading may be signaling some weakness in revenues and pricing power.
  3. Fed governors are strongly hinting at a September rate cut even before its July meeting, essentially "delivering" the September cut early as downside risks to the economy are growing.
  4. The Fed’s Beige Book confirmed that the deceleration in U.S. activity continues. We continue to think that investors are overstating the chances of a soft landing (e.g., P/E ratios are well into the 20s). The long and variable lags from the Fed’s massive rate hike in a short period of time have taken time to impact the economy, with more consequences to come.
  5. We are only into the second week of 2Q earnings reports, but estimates have already fallen from 10% to under 9%.
  6. In the eight days ending July 17, the Russell 2000 was up 10.4%, while the Magnificent 7 was down -7.2%. These eight days have erased roughly half of the Magnificent 7 lead over small stocks year-to-date.
  7. The small cap rally feels more like a trade than the start of something bigger. Earnings projections for small cap stocks are improving, but still mediocre. And the fact that companies with high short interest are outperforming suggests a short covering rally.

Source: Bob Doll, Crossmark Investments

 

Market and Index Changes for the Week Ending 7/19/2024

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

 

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

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