by Bryan Perry

July 23, 2024

This past week saw the stock market take on an entirely different tone than what had dominated the first half of July. Following the shooting at President Trump and a Republican National Convention that propelled Trump into a wider lead in the race for the White House, fresh fears of trade relations with China and the possibility of a new round of tariffs hit the all-important technology sector in a large way.

A softer-than-forecast third quarter guide from a Dutch chip equipment maker punished the semiconductor equipment sector, even as the company reported record bookings that will ramp up sales in the fourth quarter. Again, the sell-off was driven more by growing concerns of export tariffs under a Trump administration coming at a time when many portfolio managers are vacationing.

It didn’t help matters that a global meltdown of Windows operating systems stemming from a software upgrade brought major disruptions at airports around the world. Emergency management systems could not function properly, so media companies and financial institutions had their normal business operations disrupted and the bearish momentum just built on itself with a market devoid of any new bullish catalysts.

And then came Sunday’s shocking (but ultimately inevitable) news that President Biden will not run for re-election, followed by his full support behind Vice President Kamala Harris. Apparently, the ongoing pressure by senior Democratic leaders and big donors forced his inevitable decision to change course.

How the market reacts to this news will unfold this week, but it seems as if this leadership change was already priced into the market. As it stands, the Democratic Party could still hold a “mini-primary,” if the powers-that-be are not behind Harris, and investors will probably anticipate any such plans this week.

Aside from this volatile political landscape, bond traders are now more confident that that Fed will find a way to cut rates not just in September, but also in November and December. This perception caught a strong tailwind in July, not just by rewarding small-cap stocks, but also in real estate, utilities, industrials, materials, staples and financials. While big-cap technology is consolidating, most of this year’s neglected sectors caught a strong bid. For the second week in a row, the equal-weight S&P 500 beat its cap-weight peer.

SP500-EW-Chart-1

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The bulls are now looking to benefit from a few upside catalysts over the next two weeks, including a parade of blue-chip earnings reports that includes most of the mega-cap technology companies that have powered the market higher year-to-date on the back of a tsunami of capital investment into AI products and services. This backdrop for a robust earnings season is supported by the Atlanta Fed’s GDPNow model projecting second-quarter real GDP growth rising to a 2.7% annual rate, up from a 1.4% pace in the first quarter. Regardless of politics, growth is growth, and that is what the stock market likes most.

Atlanta Chart GDP

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Later this week, the Fed’s favorite inflation indicator, the June Personal Consumer Expenditures (PCE) index, will be released, with the Street looking for a 0.1% rise, and 0.2% on the Core PCE number. With summer almost half gone, it is good to see the national average price of gasoline already trending lower.

Despite the turmoil in the Middle East and the extended production cuts by OPEC+ nations, WTI crude prices have declined to $80, from $84 per barrel on July 3. This would imply cheaper gas prices in the months ahead, being that gas prices always lag oil prices on the way down.

The University of Michigan Consumer Confidence Survey is also due out this Friday. Considering the new-found anticipation of future rate cuts being priced into the bond market and a low inflation reading for June, this latest slide in gas prices should deliver an improving consumer sentiment reading this week.

18 Month Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

While it is all well and good that the market has broadened out, there is no getting around the fact that the Magnificent Seven still own the leadership role for the S&P 500 and NASDAQ. The top 10 stocks of the S&P 500 make up over 35% of its total capitalization and the top 10 in the NASDAQ 100 make up over 50% of its market cap, while the Mag 7 stocks are part the top 10 holdings in both indexes. What is highly attractive about this pre-earnings season set-up is that all the Mag 7 stocks have pulled back well off their early July highs and are now oversold, by most technical indicators, going into this earnings season.

This is the time for the technology sector to shine and retake its rightful place as the market’s torch bearer. The recent selling pressure in the Mag 7 stocks resulted in a collective loss of $1.13 trillion in market capitalization over five trading sessions last week, the biggest loss since May 2022.

Given all the wild events that have transpired over the past several days, investors are due for some good news in the form of strong sales, earnings, and bullish guidance from these companies whose stocks matter most to the bull trend. It is time for America’s technology titans to shine, and it’s a good bet they will.

NASDAQ ETF Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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