Stocks Mixed as Tech Gets Crushed; Bonds Also Mixed
Good morning!
The Dow (+0.7%), NASDAQ (-3.6%) and S&P 500 (-2.0%) ended the week mixed. During the week, the Dow had its single largest daily gain in a year and coincidentally, the NASDAQ had its worst daily loss since December 2022. Meanwhile, taxable bonds fell about 0.3% while tax-free municipal bonds gained about 0.2%. The 10-year Treasury yield rose 0.06% to finish the week at 4.24%.
The sector rotation last week captured the news, as the high-flying tech stocks got whacked by over 5%, yet the large cap value stocks gained nearly 1%. Further, small cap stocks (as represented by the Russell 2000 index) gained about 2% after a 5% gain the previous week. Amazingly, over the course of five days, the small cap and NASDAQ indices exhibited a divergence of 11%, the largest since December 2000. See the chart below to show the sharp relative recovery of small- and mid cap stocks in the past couple weeks. Note that the S&P 500 is large cap stocks, the S&P 400 is mid cap stocks, and the S&P 600 represents small cap stocks.
There was a mixture of economic data reported last week that continues to create a tug-of-war with the Fed, as it pertains to lowering interest rates. Inflation data has been easing, as inflation now is close to breaking below 3%, but other economic data continues to be strong. Last week, retail sales and industrial production exceeded expectations, while Leading Economic Indicators (LEIs) continue to lag, but are improving slightly. Strong economic data can be inflationary, but lower inflation could allow the Fed to cut interest rates. It is widely expected that the Fed will cut rates in September, and may even cut rates a second time before the end of the year. Of course, that will be data dependent, and there is plenty more data to come between now and then.
On a separate note, I wanted to announce that I just taped 3 episodes of our TV show / podcast, “Financial Planning: Explained” with Thomas Balis, CFA as my guest. Thomas is the founder of Cornerstone Portfolio Research, our CFA consulting team. In those episodes, we discussed the current state of the economy and markets, the potential impact of the election on the economy and markets, and what has shaped the markets in 2024, which is mostly artificial intelligence (AI) stocks. These episodes will air each of the next three Wednesdays, and can be seen on our website, as well as social media, YouTube, and iTunes.
Have a great day and terrific week!
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
