Hey everyone, very interesting price action this week where we saw Value surging ahead while growth stocks lagged behind. Can this trend continue or will markets revert back to Growth over Value. Get my take in this week’s Round-Up.
MARKET SOUND BITES
The Dow, S&P and Nasdaq moved to record intraday highs, but the biggest advance was notched by the small-cap Russell, which gained 6.00%, marking its best week since early November. Value stocks trumped growth stocks this week while trading volumes were light reflecting both the summer vacation season and investors waiting for the arrival of major earnings reports. The unofficial start of earnings season kicked off Friday, with Q2 earnings releases from JPM, WFC and C. All three fell at the open of trading, with JPM and WFC both missing estimates and the latter cutting its outlook. Analysts are expecting growth in overall S&P earnings to accelerate from 5.9% in Q1 to 9.3% in Q2, which would mark the fastest rate since the first quarter of 2022.
A major factor supporting many stocks appeared to be Thursday’s release of the CPI. Headline prices fell to 3.0% YoY marking the first decline since soon after the start of pandemic lockdowns in May 2020. More encouraging, perhaps, core (less food and energy) prices rose a less-than-expected 3.30% YoY, the slowest pace in over three years. At the close that day it was only the second time since 1979 that the Russell rose by over 3% while the S&P 500 finished in the red, and the first time since October 2008.
The inflation data sent shockwaves through the federal funds futures market, which began pricing in the virtual certainty of a rate cut at the Fed’s September meeting. The yield on the benchmark 10-year Treasury note declined sharply in the wake of the CPI report, briefly touching its lowest level (4.16%) since March 12. However, most analysts believe the current market pricing of more than two 25 bps by December 2024 and almost seven cuts by December 2025 too aggressive.
In Europe, UK GDP grew in May, increasing 0.4% sequentially, after stalling in April. The expansion was driven by upticks in services and construction output and on a rolling three-month basis, the economy grew 0.9%, the fastest pace since 2022.
In Japan, the yield on 10-year Japanese government bonds (JGBs) eased to around 1.05%, a two-week low, as investors assessed the outlook for monetary policy after the sharp rebound in the yen. Japanese yields also tracked U.S. Treasury yields lower as hopes for a U.S. interest rate cut rose on soft U.S. inflation data. May’s industrial production growth was revised up from an initial estimate of 2.8% to 3.6% amid strong rebounds in the output.
Chinese stocks gained as strong export data offset concerns about deflationary pressures. Exports exceeded forecasts in June, rising 8.6% from a year earlier, up from 7.6% growth in May. China’s CPI rose a lower-than-expected 0.2% in June from a year earlier, narrowing from May’s 0.3% rise. Core inflation, which strips out volatile food and energy costs, rose 0.6%, unchanged from May. The PPI fell 0.8% from a year ago, marking its 21st month of decline, but eased from a 1.4% drop in May. China’s economic recovery has been uneven this year despite numerous measures to spur growth as a protracted property sector slump and weak domestic demand have restrained consumer prices
Enjoy this week’s round-up;
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