Market Commentary
Weekly Market Commentary July 22-26, 2024
By: Greg Lai and Alex Hsaio, Co-Chief Investment Officers
Last week’s U.S. stock market was a bumpy rollercoaster ride, blending trepidation following Trump’s assassination attempt and elation from the Fed Chair’s inflation outlook during his Economic Club sit-down interview. The S&P 500 slipped by -1.96%, finding itself caught in a tango between tech weakness following Friday’s global computer outage and broader economic strength, with Retail Sales better than expected. The S&P 500 index, the market-cap weighted index, was weighed down by the Magnificent Seven, Technology and Communication stocks; however, Energy, Financials, and Industrials actually gained +1.84%, +1.45%, and +1%, respectively. Keep in mind that technology-related stocks YTD gain still sits comfortably at +25%.
As interest rates remain unchanged and rising expectations of the Fed cutting rates before the end of the year, investors should pay more attention to their bond positioning. Early in the year, longer-term bond yields were falling with expectations of a rate cut. Though still inverted, the yield curve shows signs that could suggest the beginning of a normalization process. The degree of inversion could start to lessen if long-term yields rise relative to short-term yields. Factors contributing to this could include changing investor expectations about future economic growth, inflation, and Fed policy. This was evidenced by last week’s rise in bond yields for the 7-year to the 30-year period, which indicates a more normalized state if current trends in economic data and market expectations continue. The Fed cutting short-term rates does not mean the entire yield falls; it will depend on the state of the economy.
With the next FOMC meeting on Jul 31 approaching, the latest news of President Biden dropping out of reelection, and earnings guidance from heavyweights (i.e., Alphabet, Tesla, IBM, and AT&T, etc.), investors should not be surprised by an increase in market volatility this week.
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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock’s weight in the index proportionate to its market value.
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