July 31st Market Overview

July 31st Market Overview (no fluff)

Author

J.L. Bernstein
July 31, 2024

Happy Wednesday everyone. Great reaction off the fed minutes. We are seeing a big squeeze today from everyone’s hedging into the FOMC + big name earnings this week.

Lets dig in…

Executive Summary

TLDR: Positioning was de-risked going into the Fed meeting, and the market rallied strongly after dovish comments from Powell. Tech and small-cap stocks led the charge. Bears got squeezed, leading to a broad-based rally. Expecting this momentum to continue, especially in rate-sensitive sectors.

Market Overview

We witnessed a significant rally across the board, with the S&P 500 up 1.9%, the Nasdaq surging 2.9%, and the Dow gaining 422 points. This aligns with my expectation of a multi-day rally post-FOMC. Will see what happens into the close of this week...

Key Market Drivers

  • Federal Reserve Meeting: Powell didn’t cut rates but hinted at potential cuts in September. This dovish tone was exactly what was expected.

  • Employment Data: The recent jobs data showed a slowing economy, which plays into the Fed’s hands, supporting their inflation reduction strategy.

  • Tech Sector Recovery: Strong performance in tech, especially AI and semiconductors, aligns with market sentiment.

Stock Spotlight

  • Nvidia (NVDA): The 11% surge confirms AI-related stocks are still hot… even with speculative policy changes around foreign chips.

  • Pinterest (PINS): The 12% decline shows the market’s sensitivity to guidance misses.

  • Vistra (VST): The 14% gain on nuclear plant approval demonstrates strength in energy sector news.

  • Match Group (MTCH): A 13% gain on strong earnings shows resilience in consumer discretionary.

  • Boeing (BA): A 4.5% gain despite reporting losses indicates market optimism about new leadership.

Other Magnificent 7 Updates

The performance of other tech giants supports my view on the sector’s strength:

  • Apple (AAPL): Rose, showing resilience in tech.

  • Meta Platforms (META): Gained, confirming investor confidence in AI and ad strategies.

  • Amazon (AMZN): Advanced, boosted by growth in its cloud services.

  • Microsoft (MSFT): The 1% pullback on cloud revenue miss is a reminder to stay vigilant.

Other Notable Company News

  • Bill Ackman’s Pershing Square: The IPO withdrawal shows current market sentiment favors aftermarket investments.

  • PayPal (PYPL): The upgrade to “outperform” aligns with my positive outlook on fintech. I love the value here in low 60s

Sector Watch

  • Consumer Discretionary (XLY): +2.34%

  • Consumer Staples (XLP): +0.25%

  • Energy (XLE): +0.74%

  • Financials (XLF): +0.21%

  • Healthcare (XLV): -0.06%

  • Industrials (XLI): +1.78%

  • Materials (XLB): +1.73%

  • Real Estate (XLRE): +0.57%

  • Technology (XLK): +4.16%

  • Communication Services (XLC): +1.27%

  • Utilities (XLU): +1.13%

Bond Market

The 10-year Treasury yield dipped to about 4.11% ahead of the Fed’s rate decision, its lowest level since March 12 when it was 4.081%. This is down from last October when the benchmark yield touched 5% — a first since 2007. The 2-year Treasury yield hovered around 4.36%, little changed on the day, but down from its peak above 5% in April.

Policy Watch

The Federal Reserve kept its key interest rate at 5.25% to 5.5%, citing "some further progress" toward its 2% inflation goal. Fed Chair Jerome Powell said that a rate cut in September is "on the table," provided the inflation data continues to be encouraging.

Powell emphasized that any potential rate cut would be apolitical, stating, "We never use our tools to support or oppose a political party, a politician, or any political outcome." He noted that the central bank's economic forecasts don't take into account who wins the presidency.

The Biden administration is preparing to try again to forgive student debt for millions of Americans, after the Supreme Court struck down its first effort last year. The U.S. Department of Education will begin emailing borrowers who may be eligible for the wide-scale loan cancellation in the coming days.

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