The week started off volatile, but the S&P 500 finished higher, led by the largest stocks. Large Cap Growth, High Beta, and Momentum outperformed, while the Russell 2000, Large Cap Value, and Low Volatility underperformed. One notable theme in the past few weeks has been investors pricing in slower economic growth and aggressive rate cuts

This week, the stock market experienced heightened share-price volatility. Investors are grappling with numerous uncertainties, including the direction of Federal Reserve rate policies, persistent inflation, fluctuating employment figures, corporate earnings, and the impending presidential election results.

Investors expect the Federal Reserve to start cutting interest rates at its next meeting on September 17th. Fed Chair Jerome Powell signaled the move at last month’s Jackson Hole conference by saying, “The time has come for policy to adjust."

Stocks traded higher early this week before giving back some gains on Thursday. It's been an impressive recovery in the equity market after the early-August volatility, with the S&P 500 less than -2% below its July 16th all-time high. This week’s gains were small with limited return dispersion, but there was a minor rotation underneath the surface.

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.