July Market Recap
July was a month of transition in financial markets.
Mega-cap technology stocks, which have done the market’s heavy lifting for much of 2024, were among the worst performers in July. Small-cap stocks on the other hand, have been lagging for years but suddenly exploded higher.
The Federal Reserve has not yet cut interest rates but gave every indication monetary policy will be shifting in the near future. Bond yields, meanwhile, fell below a significant threshold.
Through it all, the S&P 500 finished higher in July for the 10th year in a row.
Only two of the 11 sectors in the S&P 500 were negative, but what’s notable is they were (until recently) the two hottest sectors in the stock market. Investors are not accustomed to seeing Communication Services (-4.2%) and Technology (-2.1%) at the back of the pack, even if it is only for a month.
Real Estate (+7.1%) was the best-performing sector in July after being the worst-performing sector year-to-date. Utilities (+6.7%) and Financials (+6.3%) also did especially well.
Benchmark Returns: July 2024 | YTD 2024
|
Dow Jones
|
S&P 500
|
NASDAQ
|
+0.44% | +8.37%
|
+1.13% | +15.78%
|
-0.75% | +17.24%
|
|---|
The modest return for the S&P 500 in July suggests a relatively uneventful month, but there’s much more to the story. The shift of investment dollars away from the “magnificent seven” technology companies into other stocks is already being dubbed as a “great rotation” (we apologies on behalf of financial professionals everywhere for the industry’s childish tendency to stamp a nickname on every market trend).
The seven largest tech stocks peaked, collectively, on July 10. Over the next 12 trading days, this basket of tech stocks dropped 12%. Small-cap stocks, as measured by the Russell 2000 index, gained more than 10% over the same period. Equal-weighted equity benchmarks also benefitted from the trend.
The equal-weighted S&P 500 gained 4.5% last month, triple the return of the regular (cap-weighted) S&P 500.
The expectation of lower interest rates was a major driver of this shift. More palatable inflation data and weaker employment numbers both support the move toward an interest-rate cut in the months ahead.
Regarding inflation, the latest Consumer Price Index (CPI) rose 3% year-over-year, which was better (lower) than expected. On the jobs front, national unemployment has increased to 4.1% and fewer jobs are being created compared to earlier this year.
Roughly half the companies in the S&P 500 had reported Q2 earnings when the calendar turned to August. Currently, we’re on pace to see 9-10% blended earnings growth in the second quarter compared to a year earlier. That is up from roughly 6% earnings growth in Q1 and would be the strongest quarterly earnings in nearly three years.
We did experience a crash last month, but thankfully it was in software rather than stocks. A glitch in a routine software update initiated on July 19 by American cybersecurity company CrowdStrike inadvertently crashed millions of devices running Microsoft Windows.
It led to a prolonged period of global chaos, particularly among airlines and some banks. The US Department of Transportation opened an investigation into the processes used by Delta Airlines following the cancellations of thousands of flights related to the incident.
Bond yields fell lower in July. 10-year US Treasuries yielded 4.11% as of July 31 (down from 4.34% a month earlier) and dipped below 4% on August 1. The move in bonds is driven by the same factors igniting a shifting focus from certain stock categories toward others. Investors seem convinced we are entering a new phase of the economic cycle.
Speaking of the economy, US GDP grew 2.8% (annualized) in the second quarter, well above the 1.4% pace in Q1 and better than consensus expectations.
Internationally, non-US Developed equities gained 2.6% in July. Emerging Markets were up 0.9%. West Texas Intermediate Crude oil fell 6% and trades around $76 per barrel.
Ben Marks
Chief Investment Officer
Brett Angel
Senior Wealth Advisor
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
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The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price to-book ratios and higher forecasted growth values.
Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
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VIX-The Chicago Board Options Exchange’s CBOE Volatility Index, a popular measure of the stock market’s expectation of volatility based on S&P 500 index options. It is calculated and disseminated on a real-time basis by the CBOE, and is often referred to as the fear index or fear gauge.
