Economic Update 7-22-2024

• Economic data for the week included retail sales coming in stronger than expected, in addition to gains in industrial production and housing starts. The index of leading economic indicators continued to decline, albeit at a slower rate than the prior month. Political rhetoric on both sides appeared to be a stronger driver of investment sentiment for the week.

• Global equities lost ground last week based on a variety of concerns, notably potential tighter chip restrictions on China, which punished technology stocks. Bonds also fell back as yields rose across the board. Commodities were generally down along with a stronger dollar, with declines in industrial metals and energy.

U.S. stocks behaved unusually last week, with a sharp reversal downward in large cap growth segments, offset by better returns from cyclicals, which included value and especially strong relative results from small cap stocks. In fact, the partial recovery of small cap compared to large cap was one of the fastest in recent memory. By sector, energy led with a gain of 2%, followed by financials and consumer staples. On the negative side, technology suffered with a -5% loss (highlighted by Nvidia’s near -10% decline), along with communications and consumer discretionary, each down nearly -3%. Real estate fared positively, despite interest rates inching higher.

Stocks began the week strongly on Monday, in the aftermath of the former President Trump assassination attempt and start of the Republican national convention leading to a jump in the polls. For stocks in the near-term, this implies the potential for lower taxes and an easier regulatory environment, which could translate to stronger economic growth. At the same time, the odds of a more intensive tariff policy have also risen, with mixed results for foreign markets. Stocks hit a sharp reversal on Wed. and Thu. with Trump’s comments that Taiwan should pay for its own defense, in addition to the Biden administration considering further microchip restrictions on China. Friday’s mood remained sour due to a global technology outage, affecting air travel, banks, and media specifically, caused by what was termed a faulty update to Microsoft Windows products from the cybersecurity firm CrowdStrike. Over the weekend, President Biden’s choice to end his candidacy for reelection did remove one source of market uncertainty from the past several weeks.

Earnings season continued, but it remains early with only 15% reporting results, per FactSet. Of these, 80% have reported a positive earnings surprise. According to data received so far, with a blend of actual plus estimates, expected EPS growth has risen to 9.7%. These expectations continue to be led by communications, health care, technology, and financials—all of which are in the double-digits.

Foreign stocks lost ground as well, with the U.K. faring a bit better, while Europe and the emerging markets underperformed U.S. stocks. After a single rate cut, the ECB kept the key interest rate unchanged at 3.75%, noting that economic risks were tilted to the downside, but not committing to a path. Emerging markets were down as a whole, especially in China and Taiwan, each down -5%, with the tough trade rhetoric from the U.S. creating a more uncertain economic environment looking ahead. Chinese GDP for Q2 came in below expectations at 4.7% (versus 5.3% in Q1), in addition to decelerating retail sales and a drop in property investment. The Third Plenum, the once-every-5-year meeting to determine social and economic policy, concluded with leaders doubling down on boosting domestic technology and modernization, although details have not yet been released. Much of this appears to be in response to continued U.S. restrictions.

Bonds lost ground for the most part for the week, with investment-grade corporates faring a bit worse than U.S. Treasuries as spreads widened. Senior floating rate bank loans outperformed with slightly positive results, as might be expected. Foreign bonds suffered as well, especially in emerging markets due to a risk-off environment and stronger U.S. dollar.

Commodities generally fell back for the week, along with a stronger dollar, led downward by industrial metals and energy. Crude oil fell -3% last week to under $79/barrel, due to a decline in risk sentiment as well as higher supply estimates, and natural gas prices fell -7%.

Period ending 7/19/2024	1 Week %	YTD %
DJIA	0.73	8.01
S&P 500	-1.95	16.30
NASDAQ	-3.65	18.55
Russell 2000	1.69	8.57
MSCI-EAFE	-2.39	7.45
MSCI-EM	-2.96	8.24
Bloomberg U.S. Aggregate	-0.33	0.49

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2023	5.40	4.23	3.84	3.88	4.03
7/12/2024	5.43	4.45	4.10	4.18	4.39
7/19/2024	5.43	4.49	4.16	4.25	4.45

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                    

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.