Week in Review: July 26, 2024

July 29, 2024

Recap & Commentary

Markets generally ended a volatile week lower, as investors digested earnings reports from over 130 S&P 500 companies as well as a number of important economic data points including second quarter GDP. Small caps were the exception, benefitting from their increased sensitivity to interest rates and growing expectations that the Fed will end its current rate hike cycle in September by cutting rates 0.25%. Small caps also be benefitted from the broader rotation of late out of the Mag 7 stocks which have been the primary driver of the S&P 500’s strong year-to-date gains.

As the Fed continues to deliberate as to when it should begin cutting rates, former NY Fed President Bill Dudley weighed in with his own thoughts, writing in an opinion piece that the Fed should consider cutting rates at its upcoming July meeting this week as labor market conditions continue to slow. According to Dudley, “It might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk.”

Through Friday, 41% of S&P 500 companies had reported 2Q24 earnings.  Thus far, 78% have beaten their earnings estimate, while 60% have beaten their revenue estimate. According to industry group FactSet, consolidated earnings growth for the quarter is expected to be 9.8% which if realized would be the strongest quarterly earnings growth since 4Q21.

Economic Commentary

A busy economic calendar was highlighted by the release of second quarter GDP data which saw the US economy expand at a 2.8% annualized rate in 2Q24, twice the pace recorded in 1Q24 and well ahead of the expected 2.0% growth. Consumer and business spending were both strong increasing 2.3% and 8.4%, respectively. The rebound in consumer spending from first quarter’s modest 1.5% pace was particularly important given that the US consumer accounts for ~70% of all US economic activity.

New and existing home sales in June missed expectations, falling 0.6% and 5.4% from May, respectively. For existing home sales, June’s annualized sales of 3.89M was the slowest June on record dating back to 1999. Despite the weakening demand, the median price of an existing home rose 4.1% from a year ago to a new record of $426.9K.

The Fed’s preferred inflation measure, core PCE, increased 0.2% from May to June and 2.6% from a year ago, unchanged from May’s pace and 0.1% higher than expected. On a monthly basis, housing and utility costs rose 0.2%, their smallest gain since March 2023 suggesting that stubbornly high housing prices are beginning to cool which could help inflation readings in the months ahead.

According to industry group S&P Global, US economic activity got off to a good start in the third quarter with composite growth reaching its highest level since April 2022. Growth was led by the service sector activity which experienced its strongest growth since March 2022. Manufacturing, however, wasn’t as strong, experiencing its first outright decline since January. Both sectors saw an increase in employment albeit at a slower pace than in June.

Of Note

The 2024 Olympics, hosted by France, officially began on Friday. This year 10,500 athletes will compete in 329 events across 32 sports including break dancing, or “Breaking” which will make its debut as an official Olympic sport.

Market Indices   (As of 07/26/2024)

• July Employment Report
• JOLTs Job Openings
• ISM Manufacturing
• Consumer Confidence
• Pending Home Sales
• Weekly Jobless Claims