📉 Tech Tumbles, Small Caps Soar: Your Weekly Market Roundup

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Good morning,

The stock market put on quite a show this week, with performances as varied as a box of assorted chocolates. The S&P 500 and Nasdaq Composite took a bit of a tumble, dropping 0.8% and 2.1% respectively. But don’t worry, it wasn’t all doom and gloom. The Russell 2000 continued its recent winning streak, jumping an impressive 3.5%, while the Dow Jones Industrial Average also managed to eke out a 0.8% gain.

Now, you might be wondering, “Irving, what’s behind this mixed bag?” Well, my friends, it all comes down to some good old-fashioned profit-taking in the mega-cap and semiconductor spaces. The PHLX Semiconductor Index took a 3.1% hit, and the Vanguard Mega Cap Growth ETF wasn’t far behind with a 2.8% decline.

Alphabet and Tesla were the talk of the town this week, but not for the reasons they’d hoped. Their earnings reports fell short of the market’s lofty expectations, leading to some significant losses. Alphabet saw a 6% drop, while Tesla took an 8.1% nosedive. Ouch!

But it wasn’t just tech giants feeling the heat. Visa, a Dow component, stirred up concerns about economic growth prospects when they acknowledged that lower-income consumers have slowed their spending. Despite this, Visa shares managed to close flat for the week. Talk about walking a tightrope!

Looking at the broader sector performance, only four sectors logged declines: communication services (-3.8%), information technology (-2.5%), and consumer discretionary (-2.3%). These drops were largely due to their mega-cap components taking a hit. On the flip side, four sectors gained at least 1.0%, with materials (+1.4%) and utilities (+1.5%) leading the pack.

Have a great week!

Irving Wilkinson, Editor

AlphaBetaStock.com

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In the bond market, we saw a drop in Treasury yields, which helped fuel the positive bias this week. The 10-year note yield fell four basis points to 4.20%, while the 2-year note yield dropped 12 basis points to 4.39%. This movement came on the heels of several economic releases, including the June Personal Income and Spending Report. The report showed fairly steady behavior in the PCE and core-PCE price indexes on a year-over-year basis, supporting the market’s belief that the Fed will cut rates in September.

Oh, and let’s not forget the political drama! President Biden exited the 2024 presidential race and endorsed Kamala Harris for the candidacy. Surprisingly, this news barely caused a ripple in the equity and bond markets. The 10-year note yield settled two basis points higher at 4.26%, and the 2-year note yield settled one basis point higher at 4.52%. It seems the markets were more focused on economic data than political maneuvering this week.

US Market Highlights

Let’s take a closer look at some of the key developments in the US market:

• The US economy flexed its muscles in the second quarter, growing by 2.8% and surpassing expectations. Consumer spending remained resilient, and business investment was strong. Plus, inflation eased to 2.6% during the quarter. Not too shabby!

• June’s PCE inflation cooled to 2.5%, down from 2.6% in May. This has many folks, myself included, thinking a Fed rate cut in September might be on the horizon. However, it’s worth noting that personal income rose just 0.2%, while the average savings rate decreased to 3.4%. This could be a sign that consumers are feeling the pinch.

• The housing market continues to be a wild ride. Home prices hit a new record high of $426,900 in June, up 4.1% from last year. But here’s the kicker – inventory surged 23%, while sales volume dropped 5.4%. Those higher mortgage rates are definitely making their presence felt.

• In the world of economic indicators, the S&P composite PMI hit a 27-month high of 55%, marking an acceleration in growth. But don’t pop the champagne just yet – all of these gains came from the service sector, with the Services PMI jumping to 56% while the Manufacturing PMI slumped to 49.5%. It’s like watching a seesaw in action.

• In the gig economy world, Uber and Lyft scored a major victory in California. The state’s Supreme Court ruled that Proposition 22 was constitutional, allowing these companies to continue treating drivers as independent contractors. This decision could have far-reaching implications for the gig economy as a whole.

• Lastly, we saw the biggest IPO of 2024 with Lineage beginning to trade under the ticker “LINE”. As the world’s largest global temperature-controlled warehouse REIT, they raised funds at an implied valuation of $18 billion. Now that’s what I call a cool debut!

Global Highlights

The global markets had their fair share of excitement this week:

• China’s central bank caught everyone off guard by cutting interest rates for the first time since last summer. They’re hoping this move will give a boost to the struggling property sector and strengthen consumer demand. It’s a bold move, Cotton. Let’s see if it pays off for them.

• Over in Canada, the Bank of Canada cut its key policy rate by 25 basis points for the second month in a row, bringing it down to 4.5%. They’re hinting at more cuts if inflation continues to cool. It seems our neighbors to the north are leading the charge in monetary easing.

• Nvidia is making moves in China, working on a new AI chip that’ll be compatible with U.S. export controls. They’re partnering with Inspur, one of their major distribution partners in China, on this new chip dubbed the “B20”. It’s like watching a high-stakes game of tech chess unfold before our eyes.

• The Eurozone hit a bit of a speed bump, with economic growth grinding to a halt. The S&P Composite PMI fell to 50.1 in July, mainly due to unexpected declines in output from Germany and France. It’s a reminder that even economic powerhouses can stumble.

• In India, Apple cut iPhone prices after the country slashed smartphone import duties to 15%. Meanwhile, in China, iPhone sales dropped 7% in the second quarter while Huawei’s smartphone shipments surged 41%. It’s a tale of two markets, and Apple’s finding itself caught in the middle.

• Lastly, we saw some drama in the pharmaceutical world. Biogen and Eisai’s Alzheimer’s drug was rejected by EU regulators due to concerns about serious side effects like brain swelling and bleeding. Biogen’s shares took a nearly 8% hit following the news. It’s a stark reminder of the risks and challenges in drug development.

In the world of commodities and crypto, things have been… interesting, to say the least.

Oil prices are feeling the pressure, with disappointing economic forecasts from China and sluggish manufacturing PMIs weighing heavily on the market. We’re looking at a third consecutive week of declines for black gold. The European benchmark is flirting with the $80/barrel mark, while WTI is trading around $77.50. It seems the market is turning a blind eye to potential positive factors like OPEC+ policy and production risks in Canada’s fire-stricken oil basin.

The industrial metals segment is also taking a beating, bearing the full brunt of concerns over demand for base metals and the return of risk aversion. Copper, often called the barometer of the global economy, has fallen by almost 5% in just a month. That’s enough to make any metals trader sweat.

Gold, usually our trusty safe-haven, isn’t living up to its reputation this time around. It’s down about 1.5% over the past five days, trading at around $2,375. It seems even the shiny stuff can lose its luster in these uncertain times

.As for crypto, well, let’s just say the launch of Ethereum Spot ETFs in the US didn’t quite live up to the hype. In fact, we’ve seen net outflows of $179 million since their launch on Tuesday. It seems institutional investors aren’t as keen on ether as they were on bitcoin earlier this year. Ether has fallen by 8.3% since Monday, hovering around $3,250.

Speaking of Bitcoin, it’s holding relatively steady at around $67,500, down just 0.89% for the week. The overall crypto market has taken a bit of a hit, though, with total valuation down 3% to $2,353 billion. It’s a reminder that even in the wild west of crypto, what goes up must sometimes come down.

Buckle up, folks, because next week is going to be a doozy. We’ve got monetary policy decisions coming in from the Federal Reserve, the Bank of Japan, and the Bank of England. Plus, we’ll be getting the U.S. jobs report for July at the end of the week. Current forecasts are predicting a solid 215K nonfarm payroll additions, with the unemployment rate expected to hold steady.

On the corporate earnings front, the tech sector is taking center stage. We’ll be hearing from heavyweights like Microsoft, Meta Platforms, Apple, Amazon, IBM, and Intel. But it’s not just tech – we’ve also got reports coming in from McDonald’s, Merck, Procter & Gamble, Pfizer, Starbucks, Boeing, and Exxon Mobil, among others. It’s going to be a veritable smorgasbord of earnings reports!And let’s not forget about the OPEC+ ministers meeting. The expectation is that they’ll stick to their plan for an oil production increase in October, but in this market, you never know what might happen.

We’ve also got some IPO action to look forward to. Pershing Square USA Ltd. is expected to price its IPO on July 29 and begin trading on July 30. And keep an eye out for expiring IPO lockup periods for Amer Sports, Alto Neuroscience, Fractyl Health, and Pixie Dust Technologies.

For you dividend hunters out there, companies like Weis Markets, Delta Air Lines, Morgan Stanley, and J.B. Hunt have ex-dividend dates coming up next week. And we’re expecting dividend increases from Sturm Ruger, SunCoke Energy, McKesson, and Wingstop.

As the great Warren Buffett once said, “The stock market is a device for transferring money from the impatient to the patient.” In times like these, it’s important to remember that patience and a long-term perspective are key to successful investing.

Here’s a fun fact for you: Did you know that if you had invested $1,000 in the S&P 500 index 50 years ago, it would be worth over $180,000 today? That’s the power of compound interest and long-term investing, folks.

As we wrap up this week’s report, I want to remind you all to stay informed, stay diversified, and most importantly, stay calm. The markets may be unpredictable, but with the right strategy and mindset, we can navigate these choppy waters together.

Until next time, this is Irving Wilkinson signing off. Keep those portfolios balanced and your spirits high!

Here’s the list of events with their times in a table format:

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