· The rally off the October lows continues to broaden out. Evidence of this can be found in this week’s performance of the Dow Jones Industrial Average as compared to the NASDAQ Composite. In fact, the Dow has risen ten consecutive days, its longest streak in nearly six years. However, before you break out the champagne, let’s keep in mind that we have entered the heart of earnings season, a lot of good news has already been priced into stocks, investor sentiment has risen substantially recently and the summer can be volatile months in the market.
· The Fed already used its mulligan on inflation when Chair Jerome Powell called it “transitory” back in 2021 and therefore does not want to run the risk of being wrong again. This may in turn keep them more hawkish than the market is currently anticipating. That said, given the ten rate hikes since the first on March 17, 2022, totaling 5.25%, we believe we are at the point in the economic cycle where the Fed will be moving more cautiously, perhaps not at every meeting of the Open Market Committee (FOMC) and in increments of 0.25% as opposed to aggressively. The market can handle this.
· In order to reduce the high concentration of tech stocks within the NASDAQ 100, it will undertake a special rebalancing this coming Monday, July 24. Currently, the largest seven NASDAQ stocks comprise approximately 56% of the total index. The rebalancing will bring that weighting down to 44%, thereby reducing the concentration with those seven. These include Microsoft, Apple, Nvidia, Amazon, Meta Platforms, Tesla and Alphabet. The rebalancing is meant to bring broader diversification to passive, index investors.
· The performance of the eleven Industry Groups this past week were mirror image of the prior week and a mirror image of performance thus far year to date. Let’s see if it continues or was impacted by NASDAQ Rebalancing.
· The Open Market Committee of the Federal Reserve (FOMC) commences its regularly scheduled two-day meeting this coming Tuesday. After “skipping” hiking rates as the conclusion of its last meeting, we believe a quarter-point (0.25%) hike is in the cards. The FOMC will announce their decision at 2:00p this Wednesday.
· Inflation in Europe remains sticky. Despite falling to 5.5% y/y during June as compared to a high of 10.6% last October, there is a good chance that inflation in Europe will remain a concern as unemployment is at an all-time low and services inflations is at an all-time high. (Source, Payden & Rygel)
· According to the American Association of Individual Investors (AAII), “bullish sentiment, estimates that the stock market will rise over the next six months, jumped 10.4 percentage points to 51.4%. This marks the seventh consecutive week that bullish sentiment is above its historical average of 37.5%. This has been the longest above-average streak since a 13-week stretch from February to May 2021.”
· Despite news to the contrary, short-term market moves are un-actionable as they are impossible to predict rather than actionable.
· Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, July Consumer Confidence; on Wednesday, June New Home Sales; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and June Durable Goods Orders; and on Friday, June Personal Income and Spending, the final reading on July Consumer Sentiment from the University of Michigan and the Q2 Employment Cost Index.
· Second quarter earnings season is in full swing. Companies reporting of note, include – Microsoft (MSFT), Alphabet (GOOGL), LVMH (LVMUY), Visa (V), Meta Platforms (META), Coca-Cola (KO), Thermo Fisher Scientific (TMO), AbbVie (ABBV), Mastercard (MA), Amazon (AMZN), Procter & Gamble (PG), ExxonMobil (XOM), and Chevron (CVX).
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