Hope you are all doing well. It has been a weekend filled with geo-political headlines not just here in the U.S. but also in the Middle East and in Taiwan. It sets up for what could be a turbulent week for stocks. The past week was a continuation of the rally. The Dow rose almost 2%, topping the fractional gains for the S&P 500 and the NASDAQ and coming just short of joining its peers in record territory. The Dow’s result left it 3 points below the record that it had set two months earlier, when it closed above 40,000 points for the first time, finishing at 40,003.6. We did see a pull back in some tech stocks at the tail end of the week. If we do get further downward pressure on stocks to start next week it could be a buying opportunity and chance for those of you with money on the sidelines to get back into stocks. Richard Simmons passed away this weekend, I have broken down this week’s update using the titles to his workout videos.
Sweatin’ to the Oldies
It’s the same old issue, inflation, that is getting stocks moving and grooving. A better than expected inflation report on Thursday lifted hopes for potential interest rate cuts in coming months. The Consumer Price Index slipped 0.1% from May to June. It’s the first month-to-month drop since May 2020. Annual inflation fell to 3.0% from 3.3%.
Dance Your Pants Off!
Growth stocks have been dancing for the past year and a half. Now the rest of the stock market could be joining the party. The U.S. large-cap value stock index outperformed its growth benchmark counterpart for the week. For the week, the value index posted a 2.8% total return. I still think growth is the place to be and would advise capitalizing on any pullback in technology-focused sectors. The technology, communication services and consumer discretionary sectors, all of which include mega-cap AI stocks, represent more than half of the S&P 500. AI will continue to be the driver of corporate earnings. However, as we get closer to Fed rate cuts, cyclical areas of the market may play catch-up. Lower yields support the economy and stocks more broadly. Additionally, productivity gains and efficiencies from AI will be felt across all sectors.
No Ifs Ands or Butts
The long end of the bond market is not the place to be with your income oriented assets, no if ands or buts about it. Don’t get lured into longer term bonds even though yields of government bonds continue to drop. The yield of the 10-year U.S. Treasury bonds fell to 4.18% at Friday’s close, the lowest in nearly four months, and yields of 2 and 30-year notes also declined. Bonds typically perform well during Fed rate-cutting cycles. I think optimism over said rate cutting cycle is overblown and would not be shocked to see long term bonds give back some of their gains in the coming months. I think it is still better to stay in short-term like 3-month and 6-month Treasuries rather than going out for a longer term bond.
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