S&P 500 Slips as Market Rotation Gains Steam

The S&P 500 (Index: SPX) slipped a little over 0.8% in the trading week ending Friday, 26 July 2024. The index closed out the week at 5,459.10. The index is 3.7% below its peak of 5,667.20 that it reached on 16 July 2024.

The market’s decline coincided with the of the conveyance effect gaining steam, the mechanics of which are seen as a rotation from the megacap tech stocks that came to dominate the S&P 500 in the first half of 2024 into other component stocks of the index.

On net, we’re seeing that negative changes in the market capitalization of megacap tech stocks that are being mostly offset by increases in stocks with lower market caps. In the past week, that worked out to a relatively small decline in the level of the index.

A level that remains consistent with the dividend futures-based model‘s projected trajectory for what the S&P 500′s value would be as current day investors focus on the distant future quarter of 2025-Q2. The latest update of the alternative futures chart shows that state of affairs.

The market-moving news headlines for the week that was emphasize the ongoing rotation in the market prompted by the conveyance effect.

Monday, 22 July 2024

• Signs and portents for the U.S. economy:

• Tech outage eases after widespread disruption

• Without backup plans, global IT outages will happen again

Oil prices dip after Biden exit, rate outlook remains in focus

• Oil market likely to be in surplus next year, Morgan Stanley says

Fed minions thinking about when to start cutting U.S. interest rates:

• Fed may be on cusp of emerging from ‘elevated’ inflation blues

Much bigger stimulus developing in China:

• China cuts several major interest rates to support fragile economy

Nasdaq jumped, S&P and Dow also ended higher as Biden drops out of presidential race

• Wall St closes higher as investors return to megacap stocks

Tuesday, 23 July 2024

• Signs and portents for the U.S. economy:

• Crude oil posts fourth straight drop with growing concerns about demand in China
• Record house prices depress US home sales in June
• Summer travel boom not enough to fire up airline earnings

Economists say Fed minions to deliver two rate cuts before end of 2024:

• Fed to cut rates twice this year, with first move in September, economists say: Reuters poll

Much bigger stimulus developing in China:

• China’s loan collateral tweak will ease ‘asset famine’, state media says

JapanGov minions thinking about how to get more inflation:

• Japan’s chief cabinet secretary calls for broad-based wage hikes

Nasdaq, S&P finish in the red as markets prepare for Big Tech quarterly results

Wednesday, 24 July 2024

• Signs and portents for the U.S. economy:

• Oil prices finish higher as US oil, fuel inventories ease

• US refiners’ Q2 profits fall on low margins, soft fuel demand

US new home sales fall to seven-month low in June

Bigger trouble developing in China:

• China’s slump hints at a unique liquidity trap

BOJ minions signal they’ll hike rates and reduce QE:

• Exclusive: BOJ to weigh rate hike next week, detail plan to halve bond buying

Bigger trouble developing in Eurozone:

• Euro zone business growth stalls in July, PMIs show

Nasdaq sinks more than 3%, S&P slides on disappointing start of Mag 7 financial results

• Nvidia, Qualcomm lead chips lower amid broader tech sell off
• S&P and Nasdaq close at multi-week lows as Tesla, Alphabet weigh heavily
• Bonds & Big-Tech Bloodbath: Mag7 Meltdown Accelerates As Yield Curve ‘Dis-Inverts’ To 2-Year High

Thursday, 25 July 2024

• Signs and portents for the U.S. economy:

• US economic growth regains steam in second quarter; inflation slows
• US 30-year fixed-rate mortgage edges up to 6.78%, Freddie Mac says
• Oil edges up on strong US GDP data but Asia economic woes limit gains

Fed minions expected to start delivering rate cuts in September 2024:

• Fed seen holding rates steady in July, start cuts in Sept

Much bigger stimulus, trouble developing in China:

• China central bank unexpectedly conducts medium-term loan operation, cuts interest rate

• Market analysts react to surprise rate cut in China

Chinese banks cut deposit rates to relieve squeezed margins

Bigger trouble developing in Eurozone:

• German, French companies less hopeful over economic recovery

Nasdaq, S&P close lower in late-session selloff as aim for tech comeback loses steam

• This DB chart shows how the tech selloff is driving moves throughout the stock market

Friday, 26 July 2024

• Signs and portents for the U.S. economy:

• US inflation rises moderately in June
• Oil falls 1.5%, ends week lower on China demand fears

Expectations build for Fed minions to cut rates in September 2024:

• Cooling US inflation bolsters September rate cut hopes
• Fed seen on track for September rate cut after good inflation data

Bigger stimulus developing in China:

• China veers off beaten path with consumer stimulus

Bigger trouble developing in Eurozone:

• Euro zone consumers stopped lowering inflation expectations in June

Dow, S&P, surge as tech stocks advance, PCE data stoke rate-cut expectations

• Gold rises as yields slip after US data lifts rate-cut hopes

The CME Group’s FedWatch Tool forecast is mostly unchanged again this week. The tool still anticipates the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 18 September (2024-Q3), at which time, the Fed is expected to start a series of 0.25% rate cuts that will occur at 6-to-12-week intervals at least into mid-2025.

The BEA’s first official estimate of GDP in 2024-Q2 is +2.8%, which aligns with the Atlanta Fed’s GDPNow tool‘s final forecast of +2.7% for this quarter. The GDPNow tool has shifted to project 2024-Q3′s real GDP growth rate, which is starting with an estimate of +2.8% growth.

Image credit: Microsoft Copilot Designer.. Prompt: “A Wall Street bear spinning a Wheel of Fortune”.