Market Commentary 8/6/24

After reaching all-time highs in mid-July, stocks have been under pressure for the last two weeks.

For the month of July, the S&P 500 advanced 1.1%, its third consecutive monthly gain. The index briefly surpassed 5,600 for the first time before it traded lower in late July and gave back some of the gains. The tech-heavy Nasdaq 100, which led markets higher in the first half of this year, started to decline in July as Nvidia, Microsoft, Google-parent Alphabet, and Facebook-parent Meta traded down after their strong starts to the year. In the bond market, Treasury yields fell. As of the last Friday’s close, the NASDAQ is now in a correction as the decline for this tech-heavy index from its recent all-time high has exceeded 10%.

The U.S. Bond Aggregate Index, which tracks a wide array of investment-grade bonds, traded up 2.4% for a third consecutive month of gains, the longest win streak since 2021. Despite the muted headline returns, the stock market experienced a seismic shift as expectations increased for a September interest rate cut. As we ended the week, the 10-year Treasury yield fell to 3.79%, its lowest since December, as demand for safety increased on recession fears.

During July, investors started to rotate into small-cap stocks as rate cuts became more probable. The better-than-expected inflation report raised expectations for a September interest rate cut, leading to a significant rotation within equity markets. Investors moved from large-cap stocks into small-caps, with the Russell 2000 outperforming the S&P 500 by over 9%. This year’s high-flying mega-caps bore the brunt of the large-cap sell-off as investors questioned when billions of dollars in AI investments will pay off. As investors rotated, the year-to-date return gap between the Nasdaq 100 and Russell 2000 narrowed.

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