This week, the S&P 500 continued to trade higher following the recent market volatility. The index has reclaimed its 50-day moving average and improved its technicals from the early August low. This week, the market returned to its 1H 2024 regime.

The stock market had a strong start this year. The S&P 500 gained over +15% in the first six months, its 16th strongest first-half return since 1931. The equity market’s rise continued into early July, and the index set a new all-time closing high on July 16th. However, the stock market experienced increased volatility as it traded lower over the past few weeks.

This week, the market experienced significant deleveraging as it saw a decline in risk appetite: defensive sectors and gold outperformed. Stock and bond volatility spiked, but the credit market showed little sign of stress. We expect residual volatility in the near term as the market seeks a new equilibrium.

This week, the Bureau of Economic Analysis (BEA) reported a 0.1% month-to-month increase in the personal consumption expenditures (PCE) price index, matching economists’ outlook for a 0.1% expansion; the headline PCE index was unchanged in May. On a yearly basis, the index rose 2.5%, on par with estimates and below the prior reading of 2.6%.

The S&P 500 Index returned +1.2% in July, underperforming the Russell 2000 Index’s +10.3% return. Ten of the eleven S&P 500 sectors traded higher, led by Real Estate, Utilities, and Financials. Technology was the only sector to trade lower, reversing a portion of its rise in the first half of 2024.

This week’s economic data from the Bureau of Economic Analysis (BEA) supports Wall Street’s anticipation of a “soft landing” for the U.S. economy, specifically a continued modest expansion and an avoidance of a recession. 

This week's performance was similar to last week. The Nasdaq 100, Momentum, Growth, and Technology sector underperformed, while the Russell 2000, Value, and Equal Weight factors outperformed. We attribute the ongoing factor rotation to the slow momentum trade as interest rate cuts come into view.

The stock market had a strong start in the first half of 2024. We review the S&P 500’s year-to-date return against its average annual return path since 1931.

This week, the S&P 500 traded above 5,600 for the first time this week. However, the Thursday market rotation after the June CPI release shaped returns. Headline CPI fell by -0.1% in June, the slowest since May 2020. Core CPI rose by +0.1%, the slowest since August 2021.

The topic of interest rate cuts continues to dominate the financial markets. Investors are focused on when the Federal Reserve will lower rates, all while keeping a close eye on corporate earnings and valuations. In this update, we recap the second quarter, discuss investors’ focus on the Federal Reserve, and look ahead to the themes to monitor for the rest of 2024.

This week, stocks and bonds traded range-bound. The large size factor continued to outperform Small, and there was limited factor and sector dispersion. Treasury yields were volatile but ultimately ended the week unchanged, with bonds remaining overbought territory after the recent drop in yields. Notably, WTI crude traded back above $80 per barrel.

This week’s performance was top-heavy as the size factor continues to shape equity returns. The Magnificent 7 propelled the S&P 500 and Nasdaq 100 to new all-time highs, with Technology as the top performer. This week’s note discusses this year’s top-heavy return profile and how it’s distorting headline returns.