Weekly Market Review and Outlook

John McHugh |

This week has been a promising one for the stock market, with the S&P 500 rebounding after a brief setback last week. Notably, the Nasdaq surged for the fifth consecutive week, both indices reaching new record highs. The cap-weighted S&P 500 outperformed its equal-weighted counterpart for the second week in a row, driven primarily by the remarkable performance of major tech stocks.


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Market Highlights:

Several sectors stood out with strong performances:

  • Big Tech: Leading the charge, showcasing robust growth.
  • Copper and Aluminum: Benefiting from increased demand.
  • Tech Hardware and Semiconductors (SOX +3.4%): Continuing their upward trend.
  • China Tech, Payments, and Precious Metals Miners: Also showing notable gains.


Conversely, some sectors underperformed:

  • Small Caps, Travel and Leisure, Machinery: Struggled to maintain momentum.
  • Homebuilders (XHB -3.1%), Pet Products (CHWY -8.3%): Faced significant declines.
  • Apparel Retail, Auto Parts, Paper, and Agricultural Chemicals: Also lagged behind.


In the bond market, Treasuries strengthened with a steepening curve, as the 2-year yield settled around 4.60% and the 10-year yield dipped below 4.30%. The dollar index fell by 0.9%, while gold prices rose by 2.5%. Bitcoin futures, however, declined by 7%, marking the fourth straight week of losses. WTI crude oil prices increased by 2%.


Key Drivers:

The primary narrative driving the market this week was the increasing likelihood of a September Fed rate cut. This sentiment was bolstered by data indicating cooling inflation and a weaker labor market. Fed Chair Powell's remarks also had a dovish tone, acknowledging significant progress toward the inflation target. Additionally, July's seasonality trends provided support, with historical data showing a strong performance for the S&P 500 in the first 10 trading days of the month.

Earnings growth estimates remained resilient, with Q2 EPS growth projected at around 9%, the highest since 2021. Despite concerns about the high bar set for earnings, the percentage of companies with positive EPS revisions improved, helping to ease worries about narrow market breadth. Sentiment and positioning concerns were somewhat mitigated by the lowest AAII bullish sentiment since early June, down to 41.7%.


Growth and Economic Concerns:

Despite the positive market trends, growth concerns persist. The Citi Economic Surprise Index reached its most negative level since August 2022, and Bloomberg's consensus GDP growth forecast for 2024 was revised down to 2.3%. The Fed's communication emphasized a patient stance until more clarity on inflation is achieved. Sentiment remains stretched, with the AAII Sentiment Survey showing above-average bullish sentiment for 34 of the past 35 weeks. 

Definition: The AAII Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market short term; individuals are polled from the AAII Web site on a weekly basis.


Market volatility, as measured by the VIX, remains historically low, raising concerns about complacency. Bond market volatility, indicated by the MOVE index, continued to rise due to factors like US political uncertainty and a volatile macroeconomic backdrop. Other bearish narratives include narrow market breadth, challenges in AI proliferation, weakening consumer spending, and declining household cash balances.


Economic Data:

This week provided mixed economic signals. June's payroll report exceeded expectations, but revisions to the prior two months subtracted 111,000 jobs, and the unemployment rate rose to 4.1%. Wage growth slowed to an annualized 3.86%, the lowest since May 2021. Continuing claims also hit their highest level since November 2021. June's ISM Services index fell into contraction territory, and the ISM Manufacturing index, although slightly improved, remained below 50. Disinflation trends were evident in both ISM Services and Manufacturing prices paid indices.


Treasury Market Reaction:

The combination of soft landing prospects and growth concerns fueled a rally in Treasuries, reversing the earlier selloff. The probability of a September rate cut increased to 78% by Friday, up from 65% a week earlier. However, political uncertainty continues to drive Treasury volatility, with markets reacting to political developments and the potential impact of future policies.

Looking Ahead:

Next week promises to be eventful, with several Treasury auctions and key economic data releases, including:

  • June CPI (11-Jul): Core CPI expected to remain at 0.2% m/m and 3.5% y/y.
  • June Core PPI (14-Jul): Expected to increase by 0.2% m/m and 2.5% y/y.
  • Michigan Consumer Sentiment (14-Jul): Providing insight into consumer confidence.
  • Fed Chair Powell's Testimonies (9-Jul and 10-Jul): Before the Senate Banking Committee and the House Financial Services Committee, respectively.


Sector Performance:

  • Outperformers: Communication Services (+3.91%), Tech (+3.85%), Consumer Discretionary (+3.75%).
  • Underperformers: Energy (1.27%), Healthcare (0.96%), Industrials (0.56%), Materials (0.46%), Real Estate (0.31%), Utilities (+0.56%), Financials (+0.93%), Consumer Staples (+1.03%).

As always, we remain vigilant and committed to navigating these market dynamics to achieve the best outcomes for our investors. Thank you for your continued trust and support.