Small Caps & Real Estate Show Signs of Life, Markets Overview 07/13/2024

Markets Overview 07/12/2024

S&P 500 + 0.87%

DOW 40K + 1.59%

Nasdaq -0.30 %

Notable Sector Performance

Real Estate + 4.41%, Cool CPI report helped this gain as speculators jumped in as hopes for rate cuts will boost this rate-sensitive sector which is having the worst year out of all sectors, gaining just 1.53% on the year. We saw home builder stocks also gain this week with stocks such as $PHM, $DHI, & $LEN all jumping on these hopes also.

Utilities + 3.95%, again, rate cut hopes helped this as investors are happy inflation is on its way down and fed-funds futures are now pricing in an 89% chance of a rate cut in September. The market sees a lot of value in utility stocks as some believe the AI revolution has boosted some stocks to the overvalued range and that utilities are going to fuel the gold rush. This indirect exposure can weather the volatility we are seeing in the tech sector.

In contrast, the technology sector increased by only 0.40%. This was caused by an overall broadening out of the market as investors digested the good data we received on Thursday and took profits while rotating out of the tech sector in preparation for that September rate cut we all are hoping for.

Small Caps: The Russell 2000 had its best day since November on Thursday, surging 3.6%. This contrasts what happened with mega cap tech as investors sold off bets and piled into parts of the market where it hasn’t been so pretty. Many funds that were also short mid-cap and small-cap stocks also felt the pain as they had to unwind bets.

Observations:

-Tech sell-off near end of week leaves NASDAQ down

-Tesla delays Robotaxi and gets downgraded by UBS overvaluation concerns after huge rally (Tesla (88x) is trading at double Nvidia’s PE (44x))

-Lucid Motors jumps 36% to $4.25 after CEO states that Saudi PIF is “the perfect partner”, rumors of a short squeeze going around also

-Rivian continues their jump as they traded 21% to $18 in hopes that they can now become a profitable EV maker

-Banks show that investment banking profits aren’t enough and that guidance is what is gonna move the stock as big banks such as JP Morgan and Citi both lose ground on Friday after lackluster net interest income guidance

-Rate-sensitive sectors lead in gains after a cool CPI print

Overall a super good week for equities as we saw highs in places that we haven’t in a while. The sectors that will benefit from a rate cut the most soared and investors took some chips off of the table in mega-cap tech. Earnings week also kicked off and some names I am watching for next week include Netflix, Goldman Sachs, United Airlines, and Morgan Stanley. I think the banks set the tone with what is gonna matter with earnings, the guidance is gonna matter the most as we are due for a market broadening. Everybody is bullish but the market has been very driven by economic events and this earnings season is a great chance for the market to turn fundamental again and be driven by earnings, not momentum/economics. I think small caps have a lot to prove with their guidance this earnings season as it has been tough on them in this high-rate environment but if cuts happen, they should be prepared to perform again if they want a further market broadening.