July 2024 - Market Update

Data Dashboard

Stock Market

The S&P 500 gained in July, whereas the Nasdaq was down by about 0.73%.

Technology was the worst performing sector in July, but its still up 14% YTD. All other sectors were positive for the month with Real Estate & Utilities leading the way. The VIX, widely known as the Fear Index, ended the month at 16.36, up from 12.44 at the end of June, warranting some caution.

With higher interest rates, large-cap stocks, which typically hold the least % of debt, have been outperforming small & midcap stocks for most of 2024. We saw that difference go down a little in July, as small-cap & mid-cap gained 10% & 5%.

July was a busy month for Q2 earnings. Financial stocks did well, driven by positive earnings & revised Q3 earnings estimates. Consumer discretionary showed signs of weakening consumer demand, with Tesla and McDonald’s reporting negative earnings growth. Recently, we have seen the broader market sentiment rely heavily on Big-Tech earnings & guidance. Microsoft & Google reported earnings, but projected higher AI-related expenses & a longer path to profitability in their AI investments.

July Monthly Returns (by US Sector)

Bond Market

The Bank of Japan raised its key interest rate to 0.25% from a range of 0-0.1%, after nearly a decade, in an attempt to curb the Japanese Yen’s slide against the US $.

The Fed kept its target rate at 5.25% to 5.5% on its July 31 FOMC meeting. But Wall Street expectations of aggressive interest rate cuts continue to push bonds higher. The 10Y treasury yield stood at 4.00%. Markets are still pricing in 1.14 rate cuts by the September FOMC meeting.

High yield corporate bond spreads keep edging higher, presently at 3.88%, from 3.64% at the end of June. Short-term yield curves still remain inverted.

The anticipation of rate cuts in the near future has had a positive effect on bonds, especially in the last few months. Swaps markets are pricing in 4 rate cuts (25bps) before the end of the year. Wishful Thinking?

Economics

The highlight of the month was the Jul-31 FOMC meeting, where the Fed decided to keep rates steady.

Right now, markets are very sensitive to economic releases & anticipated rates cuts. Initial jobless claims came line slightly lower than expected. The Fed’s preferred inflation gauge, the PCE came in as expected at 2.5% YOY, and core PCE came in slightly higher at 2.63%, but GDP growth came in well above expectations at 2.8% QoQ for the second quarter.

The narrative is mixed, with resilient spending, cooling inflation, but slowing employment & manufacturing. The first couple weeks of August would be crucial, with unemployment, wages CPI Inflation & ISM Manufacturing data coming in.

June Economic Dashboard

Tactical Trades

In our tactical stock portfolio, we trimmed our IT positions, in favor of Real Estate. Our largest position is currently in Healthcare, with Financials & Consumer Discretionary tied for second.

Our tactical ETF portfolio, we have replaced our Taiwan & Japan holdings in favor of India & Switzerland. We are also bullish on the real estate sector going forward, and have switched our European financials with regional banking.

For our fixed income portfolio, we are focusing on a combination of shorter duration bonds with the highest yields, and longer duration mortgage bonds to take advantage of lowering interest rates in the near future.

As always, reach out with any questions or concerns.

Thanks,

The Friedenthal Financial Team

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