Week in Review: July 19, 2024

July 22, 2024

Recap & Commentary

A week which began with the S&P 500 and Dow Jones Industrial Average setting new record highs, ended with the NASDAQ suffering its worst one-day decline since late 2022 and the S&P 500 enduring its second worst weekly decline of the year.

The selloff initially began in tech stocks, the largest contributor to the market’s strong year-to-date returns, before spreading to other sectors. The selloff followed a period of muted volatility in which the S&P 500 experienced just seven days during the first half of the year where it fell by 1% or more, compared to the 10-year median of 14. The selloff was described by some analysts as “profit taking,” however, extended valuations, recent limited volatility, and the market’s narrow breadth, left it susceptible to changing investor sentiment, fatigue, or both. While there didn’t appear to be a single catalyst behind the selling, some attributed it to concerns that investors had become overly confident about the prospects of a September Fed rate cut, while others attributed it to what a change in administration following the November elections could mean for various economic sectors, including Tech.

Through Friday, 14% of S&P 500 companies had reported 2Q24 earnings. Thus, far, 80% have beaten their earnings estimate, while 62% have beaten their revenue estimate. According to industry group FactSet, consolidated earnings growth for the quarter is expected to be 9.7%.

Economic Commentary

Headline retail sales growth was flat in June, down from May’s 0.3% pace, but better than economists’ expected 0.3% decline. Core retails sales, which exclude autos, gasoline, building materials, and food services, were up a robust 0.9%, over twice May’s 0.4% gain. The core sales figure is important as it is used to calculate consumer spending within the broader GDP calculation, suggesting that consumer spending remained resilient in the second quarter.

Housing starts rose 3.0% in June, following May’s 4.6% decline. Within the broader headline number, single-family starts fell to an eight-month low while permits for future construction of single-family homes fell to a one year low, pointing to the ongoing pressure of higher mortgage rates. Anticipated rate cuts by the Fed beginning later this year could help spur an uptick in housing activity both in terms of sales as well as new construction.

Initial jobless claims unexpectedly rose last week, climbing 10K to 243K, tied with June for their highest reading since August 2023. Continuing jobless claims rose slightly to 1.87M, their highest level since November 2021, suggesting that those individuals who have lost jobs are finding it more difficult to quickly find new ones. While jobless claims data tends to be volatile, the rise in claims provides further evidence of slowing labor market conditions. That in turn could spur the Fed to cut rates at its September meeting.

Of Note

Bad code contained in a software update issued by cyber-security firm CrowdStrike resulted in what one Microsoft official described as “the largest IT outage in history.” By one estimate, the outage impacted over 8.5 million Microsoft devices used by numerous customers including governments, hospitals, broadcaster, 911 dispatch centers, and airlines which saw ~5,000 flights globally cancelled on Friday.

Market Indices   (As of 07/19/2024)

• 2Q24 GDP
• S&P US Composite PMI
• PCE Inflation
• Consumer Sentiment
• Existing Home Sales
• New Home Sales
• Durable Good Orders
• Weekly Jobless Claims