Equity Update

For over a year now, financial markets have frequently rallied on weaker than expected economic data and sold off on stronger than expected economic data. This is often the case during bull market runs as the market views strong data as a reason for the Fed to raise rates and weaker data as a reason for the Fed to lower rates to support the economy.

Zachs Equity Research dated June 5th 2024:
“U.S. stocks ended higher on Tuesday buoyed by softer-than-expected jobs data, which fueled hopes of rate cuts by the Federal Reserve later this year. All three major indexes ended in positive territory.”

In keeping with the inflection theme, it now appears that bad news is in fact bad news. The recently released July jobs data came in significantly lower than expected and the stock market tumbled.

CNBC headline dated August 2nd 2024:
“Dow tumbles 800 points, Nasdaq enters correction territory after weak jobs report”

What was different about the July report that led to a different market reaction? The difference is in the magnitude of the miss and other corresponding weak data from recent weeks. Does this mean that the bull market run led by the so-called Magnificent 7 is now over? Too early to say for certain, but we have been suggesting for some time that the market is due for some rotation. As you can see below, the growth outperformance seen earlier in the year has largely been erased.

Stocks continued to make new highs in the second quarter with the S&P 500 up over 15% by June 30th. The large cap domestic index continues to outpace all other asset classes. It may turn out that this is just an overdue correction prompted by some weaker short-term data. Then again, it may in fact be an inflection point that signals a major direction change for the market leaders of the past several years. In either case, we continue to favor more attractively priced securities in less appreciated sectors as we have noted for the past year.