July 28, 2024
Volume 11, Issue 30
Weekly Recap
Domestic stocks recorded mixed returns again last week, with small-cap and value shares continuing to outpace the large-cap growth stocks that have led the market over much of the year. Indeed, at the close of trading on Thursday, the technology-heavy Nasdaq Composite was lagging the broader S&P 500 and barely outperforming the small-cap Russell 2000 for the year-to-date, before large-cap growth shares rebounded to close the week. Last week was also notable for the S&P 500 selling off on Wednesday by more than 2 percent for the first time since February 2023, while the Nasdaq suffered its worst loss since October 2022.
For most of last week, the micro seemed to take precedence over the macro, as the market absorbed one of the busiest weeks of the earnings reporting season. A 12.33 percent decline in Tesla and a 5.03 percent decline in Class C shares of Google parent Alphabet following earnings reports contributed heavily to Wednesday’s declines. Nevertheless, as of the end of the week, analysts polled by FactSet were predicting that overall earnings for the S&P 500 had risen by 9.8 percent compared with the same quarter a year ago – up slightly from the 9.7 percent estimated the previous week. Last week’s economic calendar painted an especially mixed picture of how well consumers and businesses were faring. On Wednesday, the Commerce Department reported that only 617,000 new homes were sold in June, well below expectations of around 640,000 and the lowest monthly number since last November. The average selling price also fell roughly 4 percent from the year before. The same day, S&P Global reported that its gauge of manufacturing activity unexpectedly fell back into contraction territory, to 49.5 (with readings above 50.0 indicating expansion) for the first time since December.
Thursday brought several upside surprises in the data, however, which may have contributed to a morning rally off the benchmarks’ midweek lows. The Commerce Department reported that durable goods orders, excluding those for defense and aircraft – a common proxy for business investment – rose 1.0 percent in June, the most since March 2022. On the consumer front, weekly and continuing jobless claims fell more than expected, while real (inflation-adjusted) consumer spending rose at an annualized pace of 2.3 percent in the second quarter, more than expected and up from the 1.5 percent gain in the previous quarter.
The Commerce Department also reported on Thursday that the economy grew at an annualized rate of 2.8 percent in the second quarter, according to its initial estimate, well above expectations and double the first-quarter pace. However, much of the gain came in the form of inventory building and increased government spending.
Another factor in Thursday’s rebound appeared to be the Commerce Department’s release of its core (ex-food and energy) personal consumption expenditures price index, which rose a tick more than expected (0.2 percent) in June but stayed steady at an annual rate of 2.6 percent – not too far above the 2.0 percent target for the Federal Reserve’s preferred inflation gauge.
The inflation data appeared to cement expectations for a Fed rate cut at its September meeting. Futures markets tracked by CME FedWatch ended the week pricing in a zero chance of the federal funds rate staying at its current level of a target range of 5.25 to 5.50 percent by the September meeting versus a slight one the week before. The yield on the benchmark 10-year U.S. Treasury note also ended last week slightly lower as the front end of the yield curve rallied while the back end held steady.
Market Monitor
A full listing of market performance data is available here.
DQYDJ.com (“Don’t Quit Your Day Job”) offers helpful investment calculators here, including one that shows total returns for individual stocks. Koyfin.com provides reams of data on individual stocks, including the ability to track total return — and just about anything else — over time.
In the News
The Bureau of Economic Analysis estimated Thursday that U.S. real gross domestic product – which accounts for inflation – increased at a 2.8 percent annualized rate in the second quarter of this year, beating economists’ expectations and growth in the first quarter. Meanwhile, the personal consumption expenditures price index, a measure of consumer activity, rose at a 2.6 percent annual clip in the second quarter, down from the 3.4 percent annual rate in the first three months of the year. The June PCE price index increased 2.5 percent year-over-year, down from 2.6 percent YoY in May, and down from the recent peak of 7.0 percent in June 2022. The PCE price index, excluding food and energy, increased 2.6 percent YoY, unchanged from 2.6 percent in May, and down from the recent peak of 5.4 percent in February 2022.
In the week ending July 20, the advance figure for seasonally adjusted initial jobless claims was 235,000, a decrease of 10,000 from the previous week’s revised level. The previous week’s level was revised up by 2,000 from 243,000 to 245,000. The 4-week moving average was 235,500, an increase of 250 from the previous week’s revised average.
New orders for manufactured durable goods in June, down following four consecutive monthly increases, decreased $18.6 billion or 6.6 percent to $264.5 billion, the U.S. Census Bureau announced Thursday. This followed a 0.1 percent May increase. Excluding transportation, new orders increased 0.5 percent. Excluding defense, new orders decreased 7.0 percent. Transportation equipment, down two of the last three months, drove the decrease, $19.6 billion or 20.5 percent to $75.8 billion. The U.S. District Court for the Eastern District of Texas has granted the request of the Federation of Americans for Consumer Choice and several independent insurance agents to delay the implementation of the Labor Department’s new fiduciary rule.
Charts of the Week
I found the following articles to be of note. Some may be of interest only to advisors while others are aimed more broadly. You may hit paywalls below; many can be overcome here.
- The Risks We Miss (Jonathan Clements)
- 7 Steps to Estimating Your In-Retirement Cash Flow Needs (Christine Benz)
- Kitces: 5 Industry Trends Reshaping Financial Advice (Roger Wohlner)
This is the best thing I’ve read recently; the best thing I watched. The sweetest. The smartest. The coolest. The funniest. The loveliest. The best analysis. Wow.
A decade ago, the S&P 500’s value was less than half of what it is today. Of the 10 most valuable companies in the world, only three of them – Apple, Microsoft, and Google – were in tech. Today, the situation is reversed; only three of the 10 most valuable companies in the world aren’t tech companies.
“Luck plays a major role in your financial planning…. When we are designing your financial plan, we have to ponder contingencies.” ~ Mark Newfield
Securities and advisory services are offered through Madison Avenue Securities, LLC, a member of FINRA and SIPC, a registered investment advisor. This report provides general information only and is based upon current public information we consider reliable. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures, or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment, or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Diversification does not guaranty against loss in declining markets.
