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Equities Fall As Market Rotation Continues
Equity markets fell for the second consecutive week amid mixed economic data. Global equities (represented by the MSCI All Country World Index) were down -0.90% while domestic stocks (represented by the S&P 500 Index) were down -0.82%.
S&P 500
Wednesday’s selloff was fueled by large post-earnings declines of Tesla and Google-parent company Alphabet. The S&P 500 index fell by more than 2% for the day, the first time since February 2023.
Positive and Negative Economic Data
Negative economic data for the week included home sales and the manufacturing sector. New home sales for June were reported at 617,000, missing expectations of 640,000. The S&P Global’s flash manufacturing PMI reading also surprised to the downside falling back into contractionary territory for the first time since last year.
However, Thursday’s economic data releases brought more positive news. The Commerce Department’s initial estimate of second-quarter GDP grew at an annual rate of 2.8%, beating expectations and doubling the first quarter’s 1.4% rate. The Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) price index, was also released for June showing a steady annual rate of 2.6% from the last month.
Earnings Season
With earnings season picking up, the trend of broadening earnings growth has begun to play out. According to FactSet, analyst estimates that the average earnings growth of S&P 500 companies is 9.8% as of last Friday. The larger positive earnings surprises are coming from sectors such as materials, health care, financials, and energy rather than technology and other growth sectors.
Looking Forward
This week markets will be focused on the US Federal Reserve’s policy-setting meeting that concludes on Wednesday. Markets widely expect the Fed to keep rates steady and highly anticipate the first rate cut to happen in the following September meeting.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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