Vikki Zhao
PUBLISHED July 05, 2024, 5:00 PM EST. 6 min read.
The second quarter of 2024 concluded with the S&P 500 up 15.3%, the Nasdaq Composite up 18.6%, and the Russell 2000 up 1.7% year-to-date. The Technology mega-caps significantly outperformed late in Q2 due to renewed AI enthusiasm, creating a narrow performance gap.
For instance, Technology is 12% above March highs, while the average S&P 500 stock is 3% below March highs. Year-to-date, the “Magnificent 7” stocks have contributed to approximately two-thirds of S&P 500 index returns.
Historically, a solid first-half performance usually bodes well for the second half. Since 1950, double-digit returns in the first six months have led to an average 7.7% return in the last six months, with an 83%-win rate. This is higher than the all-data average of 4.7% and a 71%-win rate.
However, this doesn’t rule out potential pullbacks. Seasonality often softens in the August-October period before a strong year-end finish, especially in election years when headline volatility can create noise.
After a “hot” start to the year, core CPI rose by just 0.16% in May (near a 3-year low), bringing the year-over-year reading down to 3.4%. To reach the Fed’s 2-2.5% target, a consistent <0.3% monthly increase is needed. The lagged effects of high interest rates and a normalizing labor market support a continued downtrend in inflation, shifting focus to the economy.
The economy is currently holding up well, but the inverted yield curve and weak leading economic indicators cannot be completely ignored. A unique aspect of this environment is the undersupplied labor market at this stage of the tightening cycle. Job gains and government spending are supporting economic activity.
AimStar analyst believes that Despite potential economic challenges ,the Fed is prepared to support employment and economic weakness. Lower interest rates are likely to induce higher valuations, with many stocks at inexpensive levels.
The sharp outperformance from Technology mega-caps has led to a spike in market concentration, with five Technology-oriented stocks now comprising 27% of the S&P 500.
Historically, spikes in market concentration have presented opportunities for the “average” stock to gain relative performance. While Technology’s fundamental momentum supports its strength, elevated valuations set high expectations. Conversely, the bar is lower for other sectors.
FOCUS ON CANADA
Bank of Canada’s Rate Cut Falls Short for Homebuyers
Reported on July 4 by AIMSTAR.CA – The Bank of Canada’s recent 0.25% rate cut is being criticized as insufficient for revitalizing the housing market. Described as “bringing a butter knife to a gunfight,” this minor reduction does little to significantly improve housing affordability. With real estate prices stagnant and inventory rising, a more substantial rate cut is needed to stimulate demand among sidelined homebuyers. Analysts suggest that mortgage rates may need to drop by over 100 basis points to counter economic challenges. However, the Bank remains cautious due to persistent inflation concerns, making future rate cuts dependent on the pace of economic slowdown.
Bank of Canada's June rate cut was like bringing a butter knife to a gunfight
HBC’s Acquisition of Neiman Marcus: A Pivotal Moment for Luxury Retail
Reported on July 4 by AIMSTAR.CA – HBC has acquired Neiman Marcus Group for $2.65 billion, creating a new luxury company called Saks Global, which will include Saks Fifth Avenue, Saks OFF 5TH, Neiman Marcus, and Bergdorf Goodman. The deal aims to cut costs, streamline operations, and boost profitability. Post-acquisition, HBC will also establish a separate entity for its Canadian operations. Analysts see this move as an opportunity to enhance operational efficiency through digital technology and AI, while also highlighting the challenges facing the department store sector.
Canada’s Unemployment Rate Rises to 6.4%, Youth Jobless Rate Hits Decade High
Reported on July 5 by AIMSTAR.CA – Canada’s unemployment rate increased to 6.4% in June from 6.2% in May, continuing an upward trend since April 2023, according to Statistics Canada. The economy lost 1,400 jobs in June, with declines in industries like transportation, warehousing, culture, public administration, construction, and professional services. However, employment in accommodation, food services, and agriculture saw growth. The youth unemployment rate reached 13.5%, the highest since 2014 (excluding the pandemic years). Wage growth accelerated, with average hourly wages up 5.4% year-over-year, posing a challenge for the Bank of Canada’s upcoming rate decision on July 24.
FOCUS ON INTERNATIONAL
Bitcoin, Ether Fall as Mt. Gox Payouts Begin
Reported on July 4 by AIMSTAR.CA – Cryptocurrency values are plummeting after failed exchange Mt. Gox began payouts to former customers that could total as much as $9 billion, putting selling pressures on cryptocurrencies from holders looking to take gains. Bitcoin (BTCUSD) is down about 3% at roughly $55,000, while ether is down 3.5%, part of a selloff totaling $170 billion in market capitalization in the last 24 hours. The Mt. Gox payout could put between 65,000 and 140,000 new bitcoin in the market, while customers will also receive payments in Bitcoin Cash.
The US. Jobs Report Expected to Show Slowdown in Hiring
Reported on July 5 by AIMSTAR.CA – Following yesterday’s holiday, investors will start the trading day Friday with fresh data on the labor market when the Bureau of Labor Statistics releases its monthly jobs report at 8:30 a.m. ET. Economists forecast that employers added 200,000 jobs in June, fewer than May’s 272,000 figure, while the unemployment rate is expected to stay at 4% and hourly wages are seen rising 0.3%, down from 0.4% the prior month. In the minutes for the June meeting of the Federal Reserve released Wednesday, some officials said they were more closely monitoring job numbers as inflation ticks lower, as unexpected weakness in the labor market could prompt the Fed to move more quickly on cutting interests.
Paramount Global Shares Rise After Merger Agreement with Skydance Media
Reported on July 8 by AIMSTAR.CA – Paramount Global (PARA) has agreed to merge with Skydance Media in a deal that ends months of negotiations between principals and offers a lifeline to the struggling media company. David Ellison’s Skydance Media will pay $1.75 billion to acquire the Shari Redstone-owned National Amusements, which controls a majority of the shares of Paramount, then would merge with Paramount,The New York Times reported. The New York Times. “Paramount Agrees to Merge With Skydance.” The deal comes after several months of negotiations that included Redstone walking away from a prior offer. Shares of Paramount, which were down about 20% year-to-date through Friday’s close, are 2% higher in premarket trading.
Tesla Shares Dip After Surging 27% Last Week
Reported on July 8 by AIMSTAR.CA – After surging 27% in trading last week, shares of Tesla (TSLA) are lower by 1% in premarket trading as the electric vehicle (EV) maker looks to keep its rally going after surging on a better-than-expected second-quarter deliveries report to move into positive territory for the year. At a little over $248 a share in premarket trading, Tesla has come down from the year-to-date high of $252.37 it set Friday, but is still well over the average analyst price target of almost $200. Some analysts have raised their price targets on Tesla, with Wedbush Securities moving to $300 and Bank of America pricing the EV maker at $275 a share, although JPMorgan analysts kept their “underweight” rating on the company and its price target of $115.
US Job Growth Slows in June as Unemployment Rate Rises to 4.1%
Reported on July 8 by AIMSTAR.CA – Job growth in the US slowed in June, with the unemployment rate rising from 4.0% in May to 4.1%. The Bureau of Labor Statistics reported 206,000 new jobs in June, slightly above the expected 200,000 but below the previous month’s figures. Additionally, April and May job growth figures were revised down by 57,000 and 54,000 positions, respectively. Average hourly wages increased by 0.3% from the previous month and 3.9% year-over-year, meeting economists’ forecasts. Following the report, Treasury yields fell as investors considered the possibility of the Federal Reserve cutting interest rates in the coming months. Fed officials are now closely monitoring the labor market as inflation declines, with sudden unemployment shifts potentially prompting quicker rate cuts. The ADP employment report also showed private-sector job growth slowing for the third consecutive month in June.
July 08 – July 12 KEY TAKEAWAYS
- Federal Reserve Chair Jerome Powell is set to deliver Congressional testimony this week. Other Fed speakers are on the calendar.
- The Consumer Price Index will offer a latest look at inflation. Updates on wholesale inflation and consumer sentiment are also coming this week.
- JPMorgan Chase, Wells Fargo and Citibank kick off second-quarter earnings reports.
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