Hey everyone, this past week we saw continued rotation into small cap and value stocks while meg-cap tech took a rare move to the downside. Will this rotation continue or will markets stabilize? Get my take in this week’s market round-up
MARKET SOUND-BITES
The major indexes ended mixed in a week where continued rotation in market leadership to small-cap and value shares. The DOW outperformed, and value stocks outpaced growth stocks by 4.77%, as measured by the Russell—the largest divergence since March 2023, when growth shares outperformed by 6.54%. A major factor in the underperformance of growth stocks was a sharp decline in chip stocks on Wednesday, following news that the Biden administration indicated it was considering severe Chinese export curbs. Chip giants Taiwan Semiconductor Manufacturing, Broadcom, and NVIDIA (the third-largest company by market capitalization) fell sharply.
The week’s economic calendar generally surprised on the upside. Retail sales jumped 0.8% in June, well above consensus and the most since January 2023 while building permits rose 3.4% in June, also more than expected, putting an end to three consecutive monthly declines. Similarly, the Feds reported industrial production had increased 0.6% in June, roughly double estimates.
Fed Chair Jerome “Boom Boom” Powell addressed the central bank’s dual mandate during a speech on Monday, saying, “Now that inflation has come down and the labor market has indeed cooled off, we’re going to be looking at both mandates. They’re in much better balance.”
In Europe, the ECB kept its key interest rates unchanged at 3.75%, as expected. It said it would not pre-commit to any rate path and emphasized that economic data would guide its decisions. ECB President Christine “Queen Bee” Lagarde said a move in September was “wide open,” adding that risks to economic growth were “tilted to the downside” and that inflation would fluctuate at current levels for the rest of the year before declining in the second half of 2025. Meanwhile, industrial production in the euro area in May fell 0.6% sequentially, declining for the first time since January. However, output dropped 2.9% year over year, with steep falls in Germany, Italy, and France.
In Japan, amid speculation about whether the Bank of Japan (BoJ) could hike interest rates at its July 30–31 meeting, at the same time as it set to provide detail on the tapering of its massive bond purchases, the yield on the 10-year Japanese government bond fell to 1.04%, from 1.06% at the end of the prior week. The Japanese currency’s second successive weekly gain came after recent suspected yen-buying operations by the government. Japan’s CPI rose 2.6% YoY in June, up from 2.5% YoY in May but slightly short of consensus estimates of a 2.7% YoY increase. The overall inflation rate, which had been expected to rise, held steady at 2.8% YoY. Japan lowered its GDP growth forecast for the current fiscal year ending March 2025 to a 0.9% expansion, from a gain of 1.3% projected in January while raising the expected economic growth to 1.2% beginning in April 2025.
In China retail sales grew a below-forecast 2% in June from a year earlier, down from a 3.7% increase in May while industrial production rose a better-than-expected 5.3% in June from a year earlier but slowed from May’s 5.6% increase. And China’s real estate market continues to act as a drag on their overall economy. New home prices fell 0.7% in June, matching May’s 0.7% drop and extending losses for the 12th consecutive month and data suggested that a historic property rescue package unveiled by Beijing in May has done little to turn around the property market slump.
Enjoy this week’s round-up;
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
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