Hope you are all doing well. The S&P 500 and the NASDAQ retreated for the second week in a row amid choppy trading while the Dow again moved in the opposite direction, recording its fourth consecutive weekly gain. For the S&P 500 and the NASDAQ, modest rallies on Monday and Friday weren’t enough to offset a sell-off on Wednesday. With the Olympics starting this week I have broken down this week’s update using some of the greatest U.S Olympic performances.
Kerri Strug – 1996 Gymnastics Team Gold Medal
Just as Strug landed her vault clean on an injured ankle, the Fed is trying to pull off what by many thought was impossible. A rate hiking cycle that included 17 hikes to bring inflation down from over 9% to its target 2% without causing a recession. The Federal Reserve’s preferred inflation gauge was unchanged from the previous month and remained modestly above the Fed’s long-term inflation target of around 2.0%. Excluding energy and food prices, the core Personal Consumption Expenditures Index rose at an annual rate of 2.6% in June. It’s the same as May’s figure and matching the slowest price growth in more than three years. On a month-to-month basis, core inflation rose 0.2% in June. We have a Fed meeting coming up this week expect them to leave interest rates unchanged as they continue to try to get inflation to their target. I don’t see the Fed reducing rates until November at the earliest.
Rulon Gardener – 2000 Gold Medal Greco Roman Wrestling
The strength of the U.S. economy continues to shock the world like Gardener beating the three time reigning Olympic gold medalist undefeated Russian, Aleksandr Karelin. In the second quarter despite historically high interest rates and continuing concerns about inflation, GDP expanded at an annual rate of 2.8%. The economic numbers continue to be a pleasant surprise. Well above the consensus forecast of economists and up from a 1.4% rate in this year’s first quarter. I believe this economy will continue to exhibit strength as inflation heads lower and corporate earnings grow.
The Dream Team – 1992 Gold Medal Men’s Basketball
The tech sector has its own dream team. For the last year and a half six stocks (Nvidia, Meta, Apple, Microsoft, Alphabet and Amazon) have been blowing out their completion like the 1992 U.S. Men’s Basketball team. Is the rest of the market starting to catch up? A performance shift within the U.S. equity market extended into a third week. Large caps trailing the previously lagging small-cap segment and growth equities underperforming the value style. Over the past three weeks, a large-cap benchmark fell a cumulative 1.5% while a small-cap index jumped 11.5%. On the equity style side, a growth index fell 6.6% over three weeks while its value counterpart was up 4.6%. We have had these rotations before and growth stocks have continually bounced back and re-gained their leadership. I wouldn’t be shocked if this rotation continues for a little longer but by the end of year I am confident large cap growth will again re-assert its market leadership position. The reason for my confidence is earning growth. Four U.S. mega-cap technology stocks are expected to generate an unusually big share of overall second-quarter earnings growth. Including those four stocks (Nvidia, Amazon, Meta and Alphabet) companies in the S&P 500 were expected to report average earnings growth of 9.8% as of Friday. Excluding those big tech firms, the index’s projected growth rate is just 5.7%.
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