Disinflation Trend Continues: The June CPI reading showed consumer prices fell -0.1% m/m and up 3.0% y/y, giving us three consecutive months of lower y/y readings. This was the first negative m/m reading we’ve had since May 2020.
Equity Markets Continued to Advance in July: The S&P 500 was higher by 1% in July and is higher by 16.7% so far this year, but we also saw an increase in volatility.
Significant Equity Rotation: Small caps, value stocks and interest rate sensitive sectors all broadly outperformed their large cap growth counterparts following the June CPI report.
Labor Markets Slightly Cooling: Jobless claims and the job openings to job seekers ratio are showing some slack building in the labor markets. We believe this is a cooling of a previously overheated labor market, but we’ll continue to monitor for anything deeper.
Fixed Income Market Rally: Yields fell in July, with the 10-year closing the month at 4.03% – down over 30 bps for the month and 70bps since the recent peak in late April.
Outlook Largely Intact: Although data has been mixed so far in 2024, our outlook on the key themes driving equity and fixed income markets remain intact.
Equity Markets
Equity markets posted another monthly gain in July, although we also saw an increase in volatility and some interesting rotations under the surface. The S&P 500 had a total return of 1.2% for the month, the index peaked at a record high of 5,667 on July 16th, representing a gain of 3.8% over the June 30th closing value of 5,460. From there, the index fell -4.7% to an intramonth low of 5,399 on July 25th, before rallying the final week to close at 5,522.
Moving to sector returns, the two biggest gainers in July were Real Estate (+7%) and Utilities (+7%), marking a sharp reversal from June as falling US Treasury yields helped bolster rates sensitive sectors. In fact, Real Estate had been the lone negative sector on the year prior to July, and now is higher by nearly 5%. For Utilities, the gain in July moves the year-to-date gain up to 16.6%, good for fourth best of the 11 GICS sectors.
On the downside in July, Communication Services (-4%) and Technology (-2%) were the worst performing sectors, as the rotation away from large cap growth into more rate sensitive sectors led to investors selling shares in each. Even with the declines, each sector remains higher by over 20% for the year and are the two best performers.
Speaking of reversals, las month we discussed the large divergence between the S&P 500, which is mainly driven by the large cap companies, and the S&P 600 Small Cap Index. Through June, the S&P 500 was outperforming the S&P 600 by 16% as investors poured into the so called “Magnificent Seven” stocks at the expense of small cap and value stocks. July was a different story. While the S&P 500 did post a positive return of 1.2% for the month, the S&P 600 soared higher by 10.8%, narrowing the large cap year-to-date advantage to 6.7%. In addition to the sector and size rotations mentioned above, we also saw a clear preference for value stocks as the S&P 500 Value Index was higher by 5%.
What brought about these reversals? It almost all took place following the June CPI report that was released on July 11th, showing consumer prices actually fell as compared to May, further supporting the case for Fed rate cuts this year and leading the yield curve to shift lower. Lower borrowing costs should support smaller companies that are more reliant on floating rate debt to fund their operations and lower yields offer less competition for higher yielding equity securities. We’ll see if this trend continues.
Equity Market Rotation
Equity Market Rotation
Equity Market Rotation
Highlights
Equity Markets
Equity markets posted another monthly gain in July, although we also saw an increase in volatility and some interesting rotations under the surface. The S&P 500 had a total return of 1.2% for the month, the index peaked at a record high of 5,667 on July 16th, representing a gain of 3.8% over the June 30th closing value of 5,460. From there, the index fell -4.7% to an intramonth low of 5,399 on July 25th, before rallying the final week to close at 5,522.
Moving to sector returns, the two biggest gainers in July were Real Estate (+7%) and Utilities (+7%), marking a sharp reversal from June as falling US Treasury yields helped bolster rates sensitive sectors. In fact, Real Estate had been the lone negative sector on the year prior to July, and now is higher by nearly 5%. For Utilities, the gain in July moves the year-to-date gain up to 16.6%, good for fourth best of the 11 GICS sectors.
On the downside in July, Communication Services (-4%) and Technology (-2%) were the worst performing sectors, as the rotation away from large cap growth into more rate sensitive sectors led to investors selling shares in each. Even with the declines, each sector remains higher by over 20% for the year and are the two best performers.
Speaking of reversals, las month we discussed the large divergence between the S&P 500, which is mainly driven by the large cap companies, and the S&P 600 Small Cap Index. Through June, the S&P 500 was outperforming the S&P 600 by 16% as investors poured into the so called “Magnificent Seven” stocks at the expense of small cap and value stocks. July was a different story. While the S&P 500 did post a positive return of 1.2% for the month, the S&P 600 soared higher by 10.8%, narrowing the large cap year-to-date advantage to 6.7%. In addition to the sector and size rotations mentioned above, we also saw a clear preference for value stocks as the S&P 500 Value Index was higher by 5%.
What brought about these reversals? It almost all took place following the June CPI report that was released on July 11th, showing consumer prices actually fell as compared to May, further supporting the case for Fed rate cuts this year and leading the yield curve to shift lower. Lower borrowing costs should support smaller companies that are more reliant on floating rate debt to fund their operations and lower yields offer less competition for higher yielding equity securities. We’ll see if this trend continues.
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