July 2024 was a month full of flip flops. Not just due to the summer heat, or the presidential race, but the stock market dynamics. The year-long trend of a few large cap tech stocks dominating market performance completely flipped in July as small cap and large cap value stocks made a ferocious comeback.
Markets
A better-than-expected inflation report seemed to be the catalyst that started the shift in the investment narrative. The cooler inflation print raised market expectations for a September interest rate cut, ultimately benefiting the more debt laden small cap stocks. The 10.8% move higher in small caps came at the expense of large growth stocks that saw a decline of -1.3% for the month, with AI heavy weights falling much more. Value stocks had a strong month, up 5.5%, which helped buoy the S&P 500 to finish up 1.2%. Interest rate sensitive sectors like real estate, utilities, and financials led the charge.
Small cap value stocks weren’t the only asset to benefit from shift. Treasury yields continued to decline, particularly in the mid to longer dated maturities. The drop in yields led to the U.S. Aggregate bond index finishing higher for the third month in a row, up 1.8%. That marks the longest win streak since 2021.
Fed Finish
In the final day of the month, the Federal Reserve announced it left rates unchanged. Jerome Powell added to the optimism with hints of rate cuts coming in September in his post meeting press conference.
July Flipped, August Flops
As soon as investors flipped the calendar to August, the market flopped on a host of news. August 1st brought the lowest manufacturing numbers since November and weekly jobless claims were higher than expected. The second punch came the following day as a gloomy jobs report showed the Unemployment rate at 4.3%, its highest level since 2021. This 1-2 combo dropped the markets over 3% in 2 days.
The next week marked the most volatile week of 2024 as investors experienced the worst day and best day of the year in the same week. The week started off with the VIX, a measure of market volatility, hitting levels not seen since COVID as the market digested the “carry trade” unwind that dropped Japanese markets more than 10% and S&P 500 another 3%. Thankfully, Thursday brought an encouraging weekly jobless claims number, which ultimately led to a 2.3% move higher in the S&P 500, and its best day since November of 2022. By Fridays close, the index was nearly flat for the week.
Looking Forward
Despite the numerous flips and flops experienced in the past several weeks, these intra-year moves are not uncommon. With that being said, the volatility is likely to persist for much of the year as the market digests future economic reports, Fed rate decisions, and the multitude of geopolitical events taking place. Maintaining a diversified portfolio across asset classes, sectors, and geographies continues to be paramount for mitigating risk in the evolving landscape.
