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July has been quite the rollercoaster ride for equities, especially the high-capitalization, high technology sectors. The 2023 ‘FAANG’-driven equity market evolved into 2024’s ‘Magnificent Seven’-driven equity market. What both markets have in common are a small group of gigantic companies driving performance. The rest of the market is performing relatively well, not as volatile as the core group. The first two weeks of July saw a strong continuation of the May-June rally, with the S&P 500 Index rising as much as +3.8%. The next two weeks of July, large cap equity markets went into a correction and surrendered all those gains and a touch more, before a small bounce the end of the week. As of last Friday, the S&P 500 Index was up +0.05% MTD.
It is still too early to call an end to this July correction. Here is the scoreboard as of Friday the 26th close. The decline for the S&P 500 Index from the July peak has been -5.1%. It’s now up +15.35% YTD. The S&P 500 Equal Weighted Index, which does not overemphasize companies by their market capitalization, corrected by -3.23% from the July high, and is still up +3.33% MTD, and up +8.57% YTD. These numbers are all quite healthy. The long term Bull Market is definitely still in play, in spite of the trading ranges that have been containing prices the past several months.
The biggest sector trade in July has been in small cap equities. The S&P 600 Small Cap Index was down -2.0% YTD this time last month. It vaulted +12.11% higher the first two weeks of July, corrected -4.37% the next 3 days, then quickly recovered and it is now up +10.28% MTD, and up +9.49% YTD. Small cap equities had been trading range bound in 2024, not sharing in the continuation rally from November and December 2023. They broke out of this trading range in July. Mid cap equities have also had a good July, with the S&P 400 Mid Cap Index up +5.00% MTD, and up +11.48% YTD.
A lot of money came out of the tech-heavy high-capitalization stocks in July. Many of these stocks have declined by more than -10% in this correction. Fortunately, they had plenty of room to give. Still, market volatility spiked in July, with the Volatility Index (VIX) jumping from 11.84 to 19.36, up +65%. This was most evident in the S&P 500 Index’s -2% single-day decline last Wednesday, when the DJIA was also down more than -800 points at one point. This might have been a leading news item in any other year. But this is an Election Year and right now financial markets are operating under and within the ‘Fog of Politics.’
International equity markets also jumped onto the rollercoaster.The MSCI EAFE Index is up +1.03% MTD and up +6.43% YTD. The MSCI Europe Index is up +1.41% MTD, and up +7.30% YTD. The MSCI Emerging Markets Index is down -0.87% MTD and up +6.55% YTD. Perhaps Europe is rallying around the 2024 Olympics. Europe’s financial markets appear to still be discounting the Russia-Ukraine War. Emerging markets have been more volatile than European markets. They also have their own war between Israel and Hamas, which appears to be discounted as well.
Bond markets remain on hold, waiting for the Federal Reserve to pick up the phone and announce a rate cut. The Bloomberg U.S. Aggregate Bond Index (AGG) has gained +1.48% thus far in July. This puts it back in positive territory for the year, now up +0.76%. This is a total return number, which includes dividends. The Fed’s actions and the impact on both stock and bond markets would be a really big deal in any other year. But this is an Election Year. Financial markets are accustomed to operating in foggy environments, though they can get distracted in the third quarter.
Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.
© 2024 Edward D. Foy. [email protected], www.foyfinancial.com.
Sources: StockCharts, Morningstar, Stock Trader’s Almanac.