Market Overview
The U.S. equity markets experienced another week of mixed and volatile performance. The mega-cap DJIA and smaller-cap Russell 2000 significantly outperformed the large-cap S&P 500 and the tech-laden NASDAQ, which saw losses concentrated among a handful of tech and growth stocks. Despite this, positive GDP data for the second quarter provided some optimism.
Key Market Movements
- DJIA: +0.7% (40,589)
- Russell 2000: +2.7% (2,260)
- S&P 500: -0.8% (5,459)
- NASDAQ: -2.1% (17,358)
-MSCI EAFE: -1.1% (2,337)
- Bond Index: +0.03% (2,178.46)
- 10-Year Treasury Yield: -0.05% (4.19%)
Sector Performance
- Communication Services: -3.8%
- Information Technology: -2.5%
- Consumer Discretionary: -2.3%
- Materials: +1.4%
- Utilities: +1.5%
Earnings Highlights
Google (Alphabet) and Tesla both reported earnings that missed expectations, resulting in more than a 6% decline in their stock prices.
Economic Data Highlights
1. GDP Growth: The U.S. economy grew at an annual rate of 2.8% in the second quarter, doubling the 1.4% growth seen in the first quarter. This increase was driven by consumer spending, private inventory investment, and nonresidential fixed investment.
2. Housing Market: Existing-home sales fell in June, while the median sales price reached a record high of $426,900. The total housing inventory increased by 3.1% from May and 23.4% from a year ago.
3. Durable Goods Orders: Orders for durable goods fell by 6.6% in June, the sharpest drop since the pandemic began. This decline was primarily due to a 20.5% drop in transportation orders.
4. Unemployment Claims: Initial claims for state unemployment benefits dropped by 10,000 to a seasonally adjusted 235,000, which was lower than expected.
5. Consumer Sentiment: U.S. consumer sentiment fell slightly to 66.4 in July, slightly below the estimated 66.5.
Market Sentiment and Fed Speculation
Friday saw significant gains driven by a cooling housing market, stronger-than-expected GDP numbers, and a Personal Consumption Expenditures Price Index in line with expectations. The market is now betting on the Federal Reserve to start cutting rates at the September FOMC Meeting, with a 90% likelihood of a rate cut, according to the CME Fed Watch Tool. There is even speculation of a 10% chance of a 50 basis point rate cut in September.
Conclusion
The mixed performance of the U.S. equity markets, with smaller caps and mega caps leading the way, reflects the current economic landscape's complexities. While tech and growth stocks struggle, positive GDP data and expectations of Fed rate cuts provide some optimism. Investors should remain vigilant and consider the broader economic indicators when making investment decisions or reach out to your Halter Ferguson Financial Investment Advisor.