Monthly Market Update – July 2024

By Simmons Investment Advisors on August 1, 2024

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Headlines From Last Month:

• US stocks were mixed in July as tech/growth companies took a breather, while value/small cap companies rallied nicely.  Volatility has picked up with several large daily moves (in both directions) for the US indices.
• Corporate Earnings – disappointing earnings from several mega-cap technology companies drove the worst 1-day performance (on July 24^th) for the S&P and Nasdaq since October 2022.  For the S&P, the drop ended its longest stretch (since 2007) without a -2% loss in a single session.
• Federal Reserve:
  • Fed Chair Powell appeared before the Senate Banking Committee on July 9th:
    • He reiterated that Fed officials are watching both for signs of slowing inflation and weakness in the jobs market – more confidence is needed before changing interest rates.
    • He explained their challenge: Keeping rates elevated for too long could hamper the economy, but cutting too quickly could reignite inflation.
  • At a fireside chat at the Economic Club of Washington, DC, Powell indicated that the FOMC won’t wait for inflation to hit their target of 2% before cutting interest rates but wants to have greater confidence that it will get there in order to make cuts.
  • The Fed kept rates unchanged (as expected) on July 31^st, for the 8^th consecutive time.
  • Fed Chair Powell said “Inflation has eased over the past year but remains somewhat elevated.  In recent months there has been some further progress toward the committee’s 2% inflation objective.” 
  • The Fed is trying to balance a slowing economy while avoiding slowing it too much towards a recession.
  • The market is currently pricing in a 100% chance of a rate cut at September’s meeting, as Powell indicated that a rate cut could be on the table.
• US Presidential election:
  • Former President Trump survived an assassination attempt on July 13^th.  Stocks moved higher as investors bet that this put Trump closer to winning, which could mean looser business restrictions and tax cuts.
  • On the 15^th, he chose 39-year-old Senator JD Vance from Ohio as his running mate as VP.
  • The Biden administration is considering trade restrictions (Trump holds the same position) on chipmakers causing the worst 1 day performance for the Nasdaq since 2022.
  • On the 21^st, Biden dropped out of the election and backed his current VP, Kamala Harris, as the Democratic candidate to run against Trump.
• A massive worldwide technological malfunction occurred on the 19^th as millions of Windows users only saw the “Blue Screen of Death” thanks to a flawed software update.  Banks, airports, and hospitals were left dealing with massive disruptions.
• The price of Oil dropped -4.45% in July, still up 9.2% in 2024, and down -16.8% from the September ‘23 high.  Demand concerns plus hopes of a cease-fire between Hamas and Israel caused the decline this past month.  A nice pop on the last day of the month helped lessen the drop in July, following the assassination of a Hamas leader in Tehran.
• Gold prices jumped 6.3% last month, up 19.35% for the year and almost 33% since the Oct 5^th low.  It closed at an all-time high on geopolitical concerns, stock volatility, and hopes of a rate cut.

• Economic Data:
  • US GDP for the 2^nd quarter increased by 2.8% (annualized), above the expected rise of 2.1%, following a rise of 1.4% in the 1^st quarter ⁽ⁱ⁾.
  • Employment/Unemployment:
    • US Nonfarm Payrolls increased by 206K in June, more than the expected 190K. 
    • Unemployment unexpectedly increased from 4.0% to 4.1%.
  • Retail Sales:
    • Were unchanged in June versus the expected decline of -0.3%.  May’s number was revised higher to an increase of 0.3%, from the previous reading of 0.1% ⁽ⁱ⁾.
  • Inflation:
    • Consumer Price Index:
      • CPI declined -0.1% (vs estimates of +0.1%) from last month, increasing 3.0% (below the expected increase of 3.1%) from a year ago ⁽ⁱ⁾.  This is the lowest annual increase in over 3 years.
      • Core CPI (excludes food and energy) rose 0.1% from last month and 3.3% year-over-year, versus expectations of 0.2% and 3.4% ⁽ⁱ⁾.
    • Producer Price Index:
      • PPI rose 0.2% in June, against estimates for an increase of 0.1%.  On a 12-month basis, it rose 2.6%, below the expected rise of 2.3% ⁽ⁱ⁾.
      • Core PPI (excludes food and energy) jumped 0.4% compared to estimates for a rise of 0.2%.  From a year ago, it increased 3.0%, higher than the expected increase of 2.5% ⁽ⁱ⁾.
    • Personal-Consumption Expenditures Index:
      • PCE increased 0.1% last month and 2.5% from a year ago (both in-line with estimates) ⁽ⁱ⁾.
      • Core PCE (excludes food and energy) rose 0.2% in June and 2.6% from a year ago (both as anticipated) ⁽ⁱ⁾.
    • Personal Spending rose 0.3% in June, as expected ⁽ⁱ⁾.
    • Personal Income increased 0.2%, below the estimate of 0.4% ⁽ⁱ⁾.

US Equities:

• The Dow was the shining star in July as higher-quality, dividend-paying value stocks led the way and riskier technology/growth stocks bounced around on several disappointing earnings. 
• The Real Estate sector was the best performing sector last month, up 7.1%, followed by Utilities (6.75%), Financials (6.3%), Industrials (4.85%) and Materials (4.3%).  On the downside, Communications Services fell -4.15% and Information Tech lost -2.1% ^(vii).
• Growth vs. Value:
  • Growth (Russell 1000 Growth Index) fell -1.72% while Value (Russell 1000 Value Index) jumped 4.96%.
  • For the year, Growth is up 18.19% and Value is up 10.68%.
• Small-cap stocks (Russell 2000 Index) rallied over 10% last month, now up 11.22% for 2024.  Small-cap companies rallied on expected interest rate cuts as lower rates make it easier to fund growth.  Trade restrictions would also help protect smaller domestic companies from foreign competition.

• Monthly performance, calculated on a price return basis:
  • Dow rose 4.41%
  • S&P 500 gained 1.13%
  • Nasdaq fell -0.75%
• Year-to-date performance, calculated on a price return basis:
  • Dow is up 8.37%
  • S&P 500 is up 15.78%
  • Nasdaq is up 17.24%

US Fixed Income – bonds yields dropped sharply on a month-over-month basis:  

• Yields on US Treasuries at the end of July:
  • 1 year – 4.74% ^(iv)
  • 2 year – 4.27% ^(iv)
  • 10 year – 4.04% ^(iv)
• As a point of reference, at June month-end, yields were at:
  • 1 year – 5.11% ^(iv)
  • 2 year – 4.78% ^(iv)
  • 10 year – 4.45% ^(iv)

Regards,

Mike & Steve

DISCLOSURE: All data is as of previous month-end (July 31^st, 2024).  Sources include www.cnbc.com (i), https://www.cnn.com/business (ii), https://finance.yahoo.com (iii), other public websites, Hightower Advisors, LLC (iv), FactSet (v), Barron’s (vi) and www.spglobal.com (vii).