Weekly Market Performance — July 26, 2024

Additional content provided by Brian Booe, Associate Analyst, Research.

LPL Research provides its Weekly Market Performance for the week of July 22, 2024. As athletes from across the globe prepared for the start of the 2024 Olympic games in Paris this week, capital markets had their own set of hurdles to navigate. Despite midweek headwinds stemming from disappointing big tech earnings, U.S. equities were able to stabilize and limit losses as better-than-expected economic data helped end the week on a positive note. As the Dow sealed the top spot on the podium among the three major U.S. indexes, European markets closed mostly higher, and Asian markets ended lower, driven by earnings and central banks as tech shares stepped out of the driver's seat. Treasuries ended higher over the last five days as yields retreated on rate-cut hopes boosted by macro releases. The dollar ended little changed as the yen surged, capturing global headlines.

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 07/26/24 @ 2:30 p.m. ET
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

U.S. equities faced another rocky week as earnings-fueled headwinds pressed pause on some major indexes' gains. Micro and macro-economic data highlighted by big tech results and key inflation data held Wall Street's attention while earnings season kicked into over-drive. The S&P 500 and Nasdaq were pulled lower amid a global tech sell-off, placing the S&P 500 0.6% in negative territory and the Nasdaq 2.0% in the red on the week. The industrials-heavy Dow Jones index fared better, adding just under 0.9%. Value stocks outperformed growth on the back of more rotational buying outside of mega caps, which also helped the Russell 2000 small cap index gain 3.2%.

Markets rallied broadly entering a fresh week on a new Presidential election landscape after President Joe Biden exited the 2024 race, subsequently endorsing Vice President Kamala Harris. While political news focused on updating polls, the stock market turned its focus on second quarter earnings results. Big tech's rebound slowed and then ground to a halt midweek following disappointing earnings from Magnificent Seven members Tesla (TSLA) and Google parent company, Alphabet (GOOGL). GOOGL slightly topped estimates and TSLA missed by $0.09 per share, sending both names into a decline as results did not meet investor expectations. The disheartened sentiment sparked a broad tech sell-off that pulled U.S. indexes lower on Wednesday, overshadowing defensive sectors' solid outperformance. Other catalysts in play this week included earnings-driven worries around consumer sentiment after Visa (V) noted a slowdown in consumer spending in July, plus home sales data well below estimates as median home prices hit record highs. Second quarter gross domestic product (GDP) released Thursday was stronger than-expected, buoying economically sensitive sectors including energy and industrials. GDP combined with earnings sparked the return of rotations into value and small caps, helping market breadth as the market bias-stripped S&P 500 equal-weight index also ticked higher. June Personal Consumption Expenditure (PCE) provided a bright spot for major indexes on Friday, as the Federal Reserve's (Fed) preferred inflation metric was in-line with consensus forecasts. The PCE release signaled that consumers are becoming stretched thin, bolstering rate-cut hopes and propelling indexes higher in a broad rally to cap the week.

European markets were also focused on earnings amid the region's busiest week of reporting. Luxury names fell as LVMH reported weak sales, due in part to a slowdown in the Chinese market. Additionally, investors took note of the London Stock Exchange Group (LSEG) reporting that earnings will likely decrease compared to last year and that fewer names are beating estimates compared to a typical quarter. Outside of earnings, European exchanges eyed Friday's PCE release in hopes that boosted rate-cut hopes for the Fed would influence the European Central Bank. Following the tech sell-off spilling over into Europe, the STOXX 600 index rallied Thursday and extended gains Friday following U.S. inflation data to finish the week 0.6% higher. Of note in politics, French President Macron called for a political truce during the 2024 Summer Olympics in Paris, stating he would not name a new government until the conclusion of the games.

Asian equities also experienced elevated volatility, as tech stocks were a drag for indexes in Japan and South Korea, which closed the week lower. China also ended in the red, driven by the People's Bank of China unexpectedly cutting the seven-day repo rate and one- and three-year benchmark lending rates. Markets fell as many calls emphasized the limited impact of the rate cuts and the ongoing lack of consumer stimulus amid curbed discretionary spending. India rallied to a record high and weekly gain Friday despite the announcement of upcoming budget updates, which weighed on markets midweek. The revised budget seeks to reduce excessive speculative stock trading via increased capital gains taxes and includes increased government spending. Taiwan's exchanges were shuttered for two days as typhoon Gaemi made landfall Wednesday after indexes had their best day in five months on Monday. Upon reopening on Friday, chip stocks slipped as they caught up to current events to pull indexes to a weekly decline. Australia ended lower, while New Zealand closed mixed as rate-cut bets rose.

Fixed Income: The Bloomberg U.S. Aggregate Index advanced this week as Treasury yields ended mostly lower to conclude a volatile week. The 10-year Treasury yield closed just under five basis points lower on the week, while the monetary policy-sensitive two-year yield also declined six basis points over the last five sessions. The economic calendar contained a flurry of data that has largely been perceived as better-than-expected, signaling the economy is cooling, not collapsing. Yields held relatively steady following weak housing data on Tuesday, however, yields experienced whippy price action on Wednesday and Thursday amid the global sell-off of technology stocks and upbeat GDP data. Yields on the long end of the curve were higher on Wednesday as stocks retreated but fell following Thursday's GDP and jobless claims release. Downward pressure continued to end the week in response to second-quarter PCE data that was in-line with estimates, and aided rate cut bets. Additionally, the U.S. Department of the Treasury hosted auctions for two-, five-, and seven-year bonds this week that were relatively well received by investors.

Considering the notable curve steepening experienced since Monday, the U.S. Treasury yield curve, while still inverted, is back to levels last seen in January and only around 0.20% away from getting back to normal. To get back to normal, one of two things could happen: short rates could fall more than long rates (bull steepening), or long rates could climb more than short rates (bear steepening). Considering the recently reinforced rate-cut expectations, historically, once the Fed starts to cut rates, the yield curve normalizes by bull steepening, which is a good thing for fixed income investors but has been a harbinger of an economic slowdown. However, given the recent economic data that has come in better than expected, we think the steepening may be overdone at this point. We remain biased toward a steeper curve, but given the steepening observed this month, we recognize it may take getting closer to the first rate cut or weaker-than-consensus data to witness substantial further steepening. And despite the recent steepening, given the still inverted yield curve, we think a neutral duration to benchmarks is prudent.

Commodities and Currencies: The Bloomberg Commodities Index shed nearly 1.4% this week. West Texas Intermediate (WTI) crude futures remained under pressure, ending 0.9% lower near $77 per barrel and securing the third consecutive week of declines. Futures prices erased Thursday's gain despite bullish U.S. inventory data and signs of a resilient economy. U.S. data was overshadowed by ongoing demand concerns from China that were reinforced by falling demand and signals of a weakening Chinese economy this week. The U.S. dollar index held relatively steady amid the flurry of economic data, ending the week with little changed. The greenback trimmed midweek losses as pressure eased after GDP data showed the world's largest economy expanded, and jobless claims data that was roughly in line with estimates. Nonetheless, the dollar still experienced headwinds, largely stemming from the Japanese yen surging to its strongest weekly performance in almost three months as traders continued to unwind bets against the currency. Short trades on the yen have been flushed out following the Bank of Japan (BOJ) currency intervention paired with the expectation of a hawkish policy tweak. Gold ended the week 0.5% lower after trimming losses Friday on Wall Street's heightened rate-cut expectations — lower rates historically have supported the bullion. Silver and copper both declined this week, driving the Bloomberg precious metals and industrial metals indexes lower. Soft commodities continued to struggle in the month of July. The Bloomberg Soft Commodity Index shed 1.8%.

Economic Weekly Roundup

Goods Inflation Decreased in June. Inflation rose a mere 0.07% as goods prices declined 0.17% but were offset by services prices up by 0.20%. Inflation continues to moderate and is slowly approaching the Fed’s target. Rent prices rose 0.26% month-to-month, back to pre-pandemic averages. Goods prices declined for the second consecutive month as consumers showed less demand for goods purchases. Services prices are moderating as most services ex-housing have eased or outright declined.

Inflation continues to moderate and is slowly approaching the Fed’s target. At next week’s meeting, we should expect the Fed to highlight the slowdown in hiring as one reason to cut rates at the September meeting. As it relates to business activity, real disposable income per capita continues to rise, giving consumers the ability to keep spending despite high price levels. So, we are paying more but we are also getting paid more.

Inventory Rebuilding Supported Q2 Growth. The economy grew 2.8% quarter-over-quarter annualized after growing 1.4% in Q1. Inventories added 0.82% percentage point to Q2 growth as retailers restocked warehouses throughout the quarter. Government spending contributed more to growth in Q2 than in the previous quarter. Leading contributors to the increase in services spending were healthcare, housing and utilities, and recreation services. The decline in vehicle average transaction price drove consumers to the lot in Q2 and supported goods spending. Business fixed investment grew from strong demand for intellectual property products.

The trajectory remains robust for capital spending related to artificial intelligence. We consider this an ongoing opportunity for investors. However, the trajectory for consumer spending, especially on services, will likely soften throughout Q3. Growth rebounded from weak numbers in Q1, but Thursday’s release did not change expectations that the Fed will cut rates at least two times this year as inflation decelerates.

Housing Activity Remains Below Pre-Covid Levels. Existing home sales in June fell 5.4% from the previous month, reaching near-term lows. June existing home sales fell to 3.89 million. To put that in context, the pace of sales in 2019 was well above 5 million. The decline was driven by a slowdown in the Midwest and South as the number of potential homebuyers dried up last month. And perhaps, the Great Geographic Reshuffling is over. Housing affordability is hovering around the lowest since the Great Financial Crisis as the market is in short supply of homes. The sale of condos also declined in June to a near-term low outside of the pandemic. Median prices continue to rise, adding acute pressure on potential home buyers.

The low supply of homes and high interest rates depressed affordability to near-term lows. Because of the tight supply of homes available for sale, median prices continue to trudge higher. We should not expect that dynamic to improve until mortgage rates drop and supply increases.

The Week Ahead

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: Dallas Fed Manufacturing Activity (July)
• Tuesday: FHFA House Price Index (May), S&P CoreLogic Case-Shiller 20-City Home Price Index (May), S&P CoreLogic Case-Shiller U.S. Home Price Index (May), JOLTS Job Openings (June), Conference Board Consumer Confidence (July), Conference Board Present Situation (July), Conference Board Expectations (July), Dallas Fed Services Activity (July)
• Wednesday: MBA Mortgage Applications (July 26), ADP Employment Change (July), Employment Cost Index (Q2), MNI Chicago PMI (July), Pending Home Sales (June), FOMC Rate Decision (July 31), Fed Interest on Reverse Balances Rate (Aug 1), Bank of Japan Rate Decision
• Thursday: Challenger Job Cuts (July), Nonfarm Productivity (Q2 preliminary), Unit Labor Costs (Q2 preliminary), Initial Jobless Claims (July 27), Continuing Claims (July 20), S&P Global U.S. Manufacturing PMI (July final), Construction Spending (June), ISM Manufacturing (July), ISM Prices Paid (July), ISM New Orders (July), ISM Employment (July), Wards Total Vehicle Sales (July)
• Friday: Two-Month Payroll Net Revision (July), Change in Nonfarm Payrolls (July), Change in Private Payrolls (July), Change in Manufacturing Payrolls (July), Unemployment Rate (July), Average Hourly Earnings (July), Average Weekly Hours All Employees (July), Labor Force Participation Rate (July), Underemployment Rate (July), Factory Orders (June), Factory Orders ex Transportation (June), Durable Goods Orders (June final), Durables ex Transportation (June final), Capital Goods Orders Nondefense ex Aircraft (June final), Capital Goods Orders Shipments Nondefense ex Aircraft (June final)