Investment Update July 16, 2024

Last Week on Wall Street

Economic data for the week included consumer price inflation coming in slower than expected, continuing a path of deceleration, while producer price inflation ticked up a bit from recent trend. Consumer sentiment continued to be negatively affected by higher price levels of the past several years.

Global equities gained ground along with the lower U.S. inflation report and dovish central bank commentary. Bonds also fared well, along with falling yields, especially in foreign debt markets as the dollar weakened. Commodities generally lost ground for the week.

U.S. stocks saw gains last week, with small caps up sharply relative to large caps, reversing weakness from much of this year. By sector, ‘value’ outperformed ‘growth,’ with utilities, materials, and health care seeing the strongest results of around 3% or better, while communications fell by over -3% (led downward by Meta and Netflix) and minimal gains in technology. Real estate gained over 4% along with the fall in yields.

Corporate earnings reports for the 2nd quarter began Friday, with several large banks starting things off, with JPMorgan and Wells Fargo showing somewhat mixed results. Per FactSet, earnings growth expectations for Q2 are hovering around 9% on a year-over-year basis for the S&P 500—exceeding the 6% of Q1 and potentially the best quarter in several years. Expected leadership by sector continues to include communications, technology, and health care (with earnings growth expected to be in the 16-18% range), with materials expected to lag with an earnings decline of -12%, and industrials also expected to experience a decline. Index revenue growth is expected to be just under 5%, with still-robust profit margins expected to be the catalyst for the stronger earnings results.

Foreign stocks outperformed U.S., with Japan and emerging markets slightly outperforming Europe, all helped by a weaker U.S. dollar and further deceleration of U.S. inflation. Stronger economic growth in the U.K. may have also helped sentiment a bit, along with fading fallout from recent elections there and in France. In Japan, it appeared authorities have continued to intervene to support the weak yen. In emerging markets, Chinese stocks gained on the heels of stronger export data, while Mexican stocks also rebounded after recent post-election weakness, also helped by a weaker dollar and hopes for Fed interest rate cuts.

Bonds fared positively, as yields fell by 10-15 basis points across the U.S. Treasury yield curve, along with Thursday’s improvement in CPI inflation. This has presumably raised the the odds of a Federal Reserve interest rate cut in September. Bond groups performed similarly, with senior floating rate loans faring slightly less positively than others, as would be expected in a falling rate week.

Commodities lost ground last week, with gains in precious metals offset by declines in energy, industrial metals, and agriculture. Crude oil prices moved down a few percent to just over $82/barrel.

Fact of the Week

The amount of cryptocurrency stolen through hacks and network attacks doubled from January 2024 to June 2024 to $1.38 billion (source: Bloomberg).