Vikki Zhao
PUBLISHED August 2, 2024, 5:00 PM EST. 6 min read
While July has been relatively flat for the S&P 500, there has been a notable rotation beneath the surface. Investors are moving away from former leaders and into areas of the market that have lagged, such as small-cap stocks and the “average” S&P 500 stock.
Although this rotation has not yet caused a significant spike in volatility or a market pullback, it does increase the likelihood of higher volatility throughout the year if sharp shifts from AI enthusiasm to lagging areas persist.
Last Wednesday marked the first 2% daily decline for the S&P 500 in 2024, a first since February 2023, compared to the average of around nine days annually of 2% declines. Despite this, the overall uptrend remains intact. We are monitoring resistance at 5550, followed by 5695, and support at 5378, followed by 5318.
Although it is too early to determine the sustainability of this rotation due to near- and intermediate-term risks, AimStar Analyst maintain a positive outlook for the next 12-18 months, supported by several potential market tailwinds.
In the coming weeks and months, AimStar analyst will closely watch earnings trends and price responses, particularly as some of the biggest beneficiaries of the rotation have contained relative earnings revisions, while Tech-centric areas continue to exhibit strong earnings.
Regarding the Fed’s decision, as anticipated, the Fed left rates unchanged at the July meeting. However, Chairman Powell mentioned that a rate cut in September is “on the table” if inflation data continues to cool.
Recent economic indicators, such as the JOLTS Job Openings and Consumer Confidence survey, show some loosening in the labor market, which may help alleviate elevated wage inflation, making the Fed’s decision easier.
Following the FOMC meeting, market expectations suggest the first cut may occur in September, with 1-2 more cuts by year-end. If the Fed maintains a dovish stance, small caps are well-positioned to benefit significantly from lower rates.
Earnings season has seen some Tech mega-cap companies reporting earnings, with mixed results overall. Despite 79% of companies beating EPS estimates by an average surprise of 4.4%, the Technology sector has had better earnings surprises this week, while Communication Services (another Tech-centric sector) has shown relatively weak surprises compared to expectations.
Given the stretched valuations, this is an area we will continue to monitor as the rotation away from former leaders progresses.
*This article’s viewpoints are attributed by Olena Li.
Hudson’s Bay Co. Faces Store Closures Amidst Neiman Marcus Acquisition Plans
Reported on July 11 by AIMSTAR.CA – Hudson’s Bay Co. announced its intention to acquire Neiman Marcus Group LLC, aiming to become a leader in luxury goods. However, Canadian shoppers are more concerned about ongoing maintenance issues, with several Bay stores temporarily closed for repairs. Recent closures in Vancouver, Victoria, Winnipeg, and Windsor have sparked concerns about the company’s financial health and general upkeep. Analysts suggest that the closures indicate financial stress and could lead to store shutdowns. The acquisition aims to create a separate Canadian entity to enhance growth and liquidity, but its impact on resolving current store issues remains uncertain.
Sellers Return to Canadian Housing Market, Increasing Inventories and Buyer Bargaining Power
Reported on July 9 by AIMSTAR.CA – Sellers are flooding back into Canada’s housing market, boosting inventories in major cities and giving buyers more leverage. The Bank of Canada’s recent interest rate cut has encouraged some buyers, but not enough to offset the rising inventory, according to RBC economist Rachel Battaglia. New listings are outpacing sales, particularly in expensive markets like Toronto, where active listings surged 68% year-over-year in June. Despite a slight sales increase, Toronto’s home prices fell 4.6%. Similar trends are seen in Vancouver and Montreal, with rising inventories and subdued price growth. Battaglia suggests more significant interest rate cuts are needed to reignite market activity.
Mining Sector Drives Deal Surge on Bay Street
Reported on July 8 by AIMSTAR.CA – Higher commodity prices and the rise of electric vehicles have boosted the mining sector, making it the focus for Bay Street dealmakers in the first half of the year. Investors showed strong interest in companies supplying copper, with the sector involved in over half of equity and equity-linked deals. This surge led to 508 debt and equity deals worth $338.7 billion, a significant increase from the previous year. Major deals included First Quantum Minerals’ comprehensive refinancing and Capstone Copper’s equity offering. The mining boom, particularly in copper and battery-related metals, is expected to continue, driven by global trends in artificial intelligence and energy storage.
Tesla Falls Further as Reported Robotaxi Delay Weighs on EV Maker
Reported on July 12 by AIMSTAR.CA – Tesla (TSLA) shares are slipping more than 1% in premarket trading after suffering the steepest losses of any S&P 500 constituent Thursday with an 8.4% plunge on a report the EV maker is postponing its robotaxi unveiling by two months. The company previously indicated it would hold an event to introduce the autonomous vehicles on Aug. 8, but Bloomberg reported the presentation has been pushed back to October. Tesla shares entered Thursday on an 11-session winning streak to move into the green for the year, fueled by its better-than-expected second quarter deliveries report, but returned into negative territory for 2024 on yesterday’s plunge.
U.S. Inflation Cools, Possible Fed Rate Cut in September
Reported on July 11 by AIMSTAR.CA – U.S. inflation slowed in June, mainly due to reduced housing costs, raising the possibility of a Federal Reserve rate cut in September. Core CPI, excluding food and energy, increased by just 0.1% from May and 3.3% year-over-year, marking the slowest rise in over three years. Overall CPI fell 0.1% from the previous month. The labor market showed mixed signals, with high jobless benefit applications but a drop in first-time filings. Traders anticipate a rate cut in September, and Fed Chair Jerome Powell emphasized that decisions will be data-driven.
July 15 – July 19 COMING UP
- Federal Reserve Chairman Jerome Powell speaks on Monday, with other Fed officials making remarks throughout the week.
- Goldman Sachs, Bank of America, and Morgan Stanley are among the major bank earnings coming this week.
- Netflix and Johnson & Johnson also report earnings this week, while Amazon hosts its annual Prime Day sales event.
- The Republican National Convention will feature remarks from presidential candidate Donald Trump.
Next week (August 5), earnings reports will be of interest across multiple sectors, including technology, healthcare, entertainment, and energy:
- Monday: Tyson Foods will report its Q3 2024 earnings.
- Tuesday: Biotechnology company Amgen and gene sequencing company Illumina will release their Q2 earnings.
- Wednesday: Disney and Shopify will release their Q3 earnings, and Moderna Inc., known for its mRNA technology and vaccines, will report its Q2 revenue.
- Thursday: Alibaba Group and pharmaceutical giant Eli Lilly will release their earnings.
- Friday: Dominion Energy Inc.’s earnings report will be in the spotlight.
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