Weekly Market Report: July 19th, 2024
Last week markets digested an assassination attempt on Donald Trump over the weekend and his subsequent nomination for POTUS at the RNC, the first week of 2Q corporate earnings reports, a major technology outage, and a very heavy dose of Fed Speak. Major averages in the equity markets delivered some long overdue consolidation with a good deal going on under the surface from market cap and style perspectives. The S&P 500 closed down 2% while small caps closed up 2.2% in a historic surge higher. International developed (-2.5%) and emerging (-4%) both sold off in sympathy with the U.S. Bond yields stayed relatively calm with the 10yr UST yield closing up slightly at 4.25% and credit spreads remaining at extreme lows. The USD closed up slightly in what was likely some risk aversion momentum while commodity markets traded lower across the board, bringing oil back to the $80 level.
Market Anecdotes
- Market internals with the historic surge in small caps and a shake up in growth/value leadership has been notable. Technology shares sold off on a major technology outage and an increase in political risks stemming from a strong resurgence of trade war narratives from the RNC.
- The rally in U.S. small caps reached historic levels last week hitting 1% gains in five consecutive days and closing at a record 4.42 standard deviations above its 50dma.
- One recession indicator worth noting is Weekly Jobless Claims which have continued to trend higher with a 4-week average up to 234k. Continuing Claims increasing to 1.867M have also been running above benchmark levels for the past two months.
- A key underlying premise of the BCA GIS downgrade on equities in June is the ‘kinked’ Phillips curve framework which suggests the pandemic related abnormality in job vacancies relative to unemployment has largely been worked through with normal relationships expected to resume.
- Excess savings certainly propped up the U.S. economy. However, the Atlanta Fed GDPNow modeled 220bps of contribution to Q1 GDP, with a final print of 98bps and is expecting 150bps contribution for Q2 with overall growth currently modeled at 2.7%.
- Comments from Powell last week on the labor market, inflation trends, and election cycle effects amounted to no move expected in July but increased odds of a move in September which markets are currently assigning a 97% probability.
- Earnings reports began in earnest last week with 88 companies reporting and beat rates of 78% alongside downbeat guidance (1% raised and 5% lowered guidance).
- While still over 100 days before the November elections, odds of a Republican POTUS victory increased 8.4% last week to 68.9% and odds of Republicans taking back control of the Senate are even higher. Currently DC in full Republican control seems to be the most likely outcome.
- Hopes for strong stimulus indications fell flat last week from Beijing’s closely watched Third Plenum which adjourned with no meaningful measures or indications.
Economic Release Highlights
- June Retail Sales came in well above consensus forecast on headline (0.0% vs -0.3%), Ex-Vehicles (0.4% vs 0.1%), and Ex-Vehicles & Gas (0.8% vs 0.1%).
- Industrial Production in June outpaced estimates (0.6% vs 0.3%) with healthy Manufacturing Output of 0.4% and increasing capacity utilization.
- June Housing Starts (1.353M vs 1.305M) and Permits (1.446M vs 1.395M) both increased over May’s level and came in above consensus forecasts.
- The July Housing Market Index fell from 43 to 42, versus consensus calls for no change, leaving the index at its lowest reading of the year.
