Market Insights

Stocks kept rising last month, but important changes could be happening as the second half of 2024 begins.

The S&P 500 climbed 1.1 percent between Friday, June 28, and Wednesday, July 31. However the Nasdaq-100 fell 1.6 percent and lagged the broader market by its widest margin since December 2022. That could suggest a long-awaited rotation away from megacap growth stocks has begun.

Instead of futuristic AI names like Nvidia (NVDA) leading, investors plowed money into old-fashioned sectors like real estate, financials and utilities. Those could benefit if the Federal Reserve cuts interest rates as expected next month.

The Russell 2000 index was another big story, jumping after the June’s inflation report was lower than expected. The small cap index outperformed the broader market by 8.9 percentage points, its biggest differential since February 2000. It got a boost from regional banks, which have now fully recovered from the collapse of Silicon Valley Bank last year.

Homebuilders and metals were other strong groups last month. Rate cuts could potentially help them as well.

Semiconductors led the downside in technology following a dramatic run in the first half. Software companies also struggled in July, partially because of CrowdStrike’s (CRWD) historic outage on July 19.

Charting the Market

The S&P 500 could be trying to bounce after falling for two weeks. It’s held its 50-day moving average and the 5,402 level where it gapped higher on June 12. Those patterns could make chart watchers think prices have stabilized.

The stochastic slow oscillator is also rebounding from an oversold condition. The broader market continued higher other times that happened, like in November and May.

August brings a few big economic events like consumer price inflation on August 14 and the Fed’s symposium August 22-24. However earnings could be the main story because expectations are firmly set for a rate cut on September 18. See the table of events below for more.

Big Movers in July

Sector Watch

Key Economic Events in July

Below are some key economic events from last month.

• Mixed jobs report shows softening: Non-farm payrolls rose more than forecast in June, but April and May were revised sharply lower. Unemployment unexpectedly hit a 2-1/2 year high. The numbers spurred hopes the Fed will cut rates in September. (7/5)
• Powell says rate cut is ‘likely’: Fed Chair Jerome Powell told the Senate Banking Committee that the central bank’s next “likely” move will be to loosen monetary policy rather than tightening. He also cited potential risks of keeping rates high for too long. (7/9)
• Inflation unexpectedly drops: The consumer price index (CPI) for June fell 0.1 percent, compared with estimates for a 0.1 percent increase. It was the lowest reading since May 2020. Shelter costs slowed sharply. (7/11)
• Economy grows much more than expected: Gross domestic product expanded 2.8 percent in the second quarter, compared with estimates for 2 percent growth. Consumer spending helped fuel the increase. (7/25)

What Experts Are Saying

Below are some noteworthy commentaries:

• Stocks could rise further in 2024 because the Fed hasn’t begun cutting interest rates yet, according to Jim Paulsen. He thinks lower borrowing costs will support risk appetite and business confidence. Paulsen was formerly chief investment officer at Wells Capital and Leuthold. (7/3)
• A correction could begin after July 17, according to Goldman Sachs. The note cited historical patterns and cautioned against buying the pullback. (7/17)
• Citi expects a strong second half, although gains may slow. The analysts think fundamentals justify higher multiples. (7/18)
• The Russell 2000 could rise at least 15 percent in August, according to Tom Lee of Fundstrat. He cited the strength of its recent move, lower valuations and the impact of potential rate cuts. (7/25)
• The “AI hype” days have ended, according to Bank of America strategist Savita Subramanian. She said investors will be more wary of companies with aggressive capital-spending plans, including Microsoft (MSFT), Meta Platforms (META) and Amazon.com (AMZN). Sentiment could instead favor companies monetizing the new technology. (7/29)

Popular Futures Contracts in July

Newsworthy Events This Month

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