Weekly Wrap-Up
In the week of July 1 through July 5, 2024, the U.S. financial markets experienced significant developments across various sectors. The major indices, including the S&P 500 and Nasdaq, reached new all-time highs. The Nasdaq's 3.5% increase marked its tenth positive week out of the past eleven, while the S&P 500 posted a weekly return of 2.0%. The Dow Jones Industrial Average also saw gains, though more modest at 0.7%. The Russell 2000 Index, which tracks small-cap stocks, fell by 1.0%, extending its year-to-date underperformance.
Economic data released during the week presented a mixed picture. The June jobs report exceeded expectations with a gain of 206,000 jobs, higher than the forecasted 190,000. However, the unemployment rate rose to 4.1%, the highest level since November 2021. Moreover, job growth figures for April and May were revised downward by a total of 111,000, indicating a slowdown in employment growth. Wage growth was steady, with average hourly earnings rising by 0.3% for the month and 3.9% year-over-year, slightly down from May's 4.1%.
Bond yields declined over the week, reinforcing expectations of a potential rate cut by the Federal Reserve later in the year. The yield on the 10-year U.S. Treasury fell to 4.28% from 4.37% the previous week. This decline in yields was observed across various maturities, with the yields of 2- and 30-year notes also decreasing. Lower yields generally make equities more attractive relative to bonds, contributing to the overall market gains.
Oil prices climbed for the fourth consecutive week, reaching their highest level in over two months. U.S. crude traded above $83 per barrel, supported by a report showing a decline in U.S. oil inventories, which analysts expect to remain tight throughout the summer. The rise in oil prices reflected broader market optimism and expectations of sustained demand.
In the cryptocurrency market, Bitcoin experienced a significant drop, falling below $54,000 at one point on Friday, down ~27%, the lowest level in more than four months. The price partially recovered to around $56,500 by afternoon trading, down from over $71,000 as recently as June 5. This volatility in the cryptocurrency market was attributed to a combination of regulatory concerns and profit-taking by investors.
The technology sector, especially semiconductor stocks, continued to drive market performance. Nvidia's significant market value rise underscored the dominance and investor enthusiasm for tech companies, particularly those with strong AI components. Other major tech and communications services sector stocks also topped the leader board, with Meta Platforms advancing more than 5% despite a lack of specific stock-related news. Tesla saw a 2% increase, benefiting from higher-than-expected quarterly deliveries and strong sales in China.
Defensive sectors such as utilities and staples also performed well, supported by the decline in Treasury yields. However, financials, industrials, and energy sectors saw declines, reflecting investor concerns about a faltering economy and its impact on cyclical stocks.
Dividend payments by S&P 500 companies saw a modest increase in the second quarter, with total payouts rising to $153.4 billion from $151.6 billion in the first quarter. This increase was partly due to several large-cap stocks initiating dividend payments for the first time, providing additional income for investors.
Looking ahead, the markets will be looking at the upcoming Consumer Price Index (CPI) report, which is expected to indicate whether the stable inflation seen in May extended into June. The May CPI report had shown an annual inflation rate of 3.3%, slightly better than the forecasted 3.4% but unchanged from April's figure. A cooler reading in the next CPI report could further support investor hopes for a September rate cut by the Federal Reserve. Will historical seasonality in the VIX repeat in 2024 or will this year’s market dynamics continue to defy and confuse?
Overall, the week of July 1 through July 5, 2024, was characterized by record highs in major indices, driven by strong performances in the tech, energy, and real estate sectors. Economic indicators presented a mixed but overall positive outlook, with retail sales growth slowing but industrial production showing resilience. Investor optimism was fueled by expectations of potential interest rate cuts by the Federal Reserve, contributing to a broadly bullish market sentiment. NAAIM Exposure Index is at 103.66 confirms that, on average, most are at least fully long with some exposure to leveraged longs (NAAIM vs S&P given below for comparison).
The cryptocurrency market experienced significant volatility, while oil prices continued their upward trend. Defensive sectors performed well amid declining bond yields, and dividend payments by S&P 500 companies saw a modest increase. Investors remained focused on potential monetary policy adjustments and upcoming economic indicators that could provide further insights into the health of the U.S. economy.
Institutional Dollar Index for Major Indices
The Institutional Dollar Index (IDI) expresses institutional volume as a percent of total daily volume by day. High values mean large institutional involvement and may suggest a directional commitment by larger players; low values mean low institutional involvement and suggest a continuation of current conditions. Like all institutional flow we look at, the direction can’t be known by this data itself; what is most important is the subsequent reaction to liquidity when it shows relatively high readings.