Commentary

The market continued a recent rotation trade last week, with the Russell 2000 gaining more than 2% while the “Magnificent 7” weighed down the Nasdaq and the S&P 500. The VIX Index remains well off its summer lows as the rotation leads to increased volatility. In the bond market, Treasury yields moved slightly higher, causing bonds to trade lower.

The S&P 500 Index, a well-known stock market index, tracks the performance of 500 of the largest U.S. companies. Many large-cap ETFs passively follow this broad index, and investors use it as a benchmark to gauge the relative performance of their portfolios. This year, however, a unique phenomenon is impacting the S&P 500. AI stocks are driving much of the index’s total return.

Nearly 11 months have passed since the Federal Reserve last raised interest rates. The pause in rate hikes follows a 17-month period where the central bank raised interest rates by 5.25%. This represented the fastest and most aggressive rate-hiking campaign in decades; however, the focus is shifting to interest rate cuts as the central bank prepares to make its next policy move.

Ten months have passed since the Federal Reserve last raised interest rates. The pause in rate hikes follows a 17-month period where the central bank raised interest rates by +5.00%. This represented the fastest and most aggressive rate-hiking campaign in decades, but the focus is shifting to interest rate cuts as the central bank prepares to make its next policy move.

Last week markets continued to pull back as the S&P 500 dropped to a two-month low. We are seeing stocks stressed due to a multi-faceted wave of challenges. The initial pullback in early April, predominantly driven by persistent inflation and higher interest rates, has catalyzed into a more extensive selloff. The S&P 500 and Nasdaq 100’s sharp decline of over 1% each on Monday of last week has sent a ripple effect across the globe. Asian benchmarks have retreated notably in Japan and Hong Kong, and European markets have not been spared the brunt.

Last week markets continued to pull back as the S&P 500 dropped to a two-month low. We are seeing stocks stressed due to a multi-faceted wave of challenges. The initial pullback in early April, predominantly driven by persistent inflation and higher interest rates, has catalyzed into a more extensive selloff. The S&P 500 and Nasdaq 100’s sharp decline of over 1% each on Monday of last week has sent a ripple effect across the globe. Asian benchmarks have retreated notably in Japan and Hong Kong, and European markets have not been spared the brunt.

Stocks traded higher in February, with the rally broadening after large cap stocks accounted for most of January’s gains. The S&P 500, with a monthly gain of 5.2%, traded above 5,000 for the first time. The Dow Jones Industrial Average likewise set a new closing high in February, and the Russell 2000 Index of small cap stocks gained 5.7% for the month after declining 3.9% in January. The Consumer Discretionary, Industrial, and Material sectors outperformed the S&P 500, while the Utility, Consumer Staple, and Real Estate sectors underperformed.

As July ended, the S&P 500 recorded its fifth consecutive monthly gain, having recovered most of the losses from 2022. Additionally, the index is currently trading less than 10% below its all-time closing high set in January 2022.