July 22 2024

Equities Pull Back Amid Broader Rotation to Small Caps

Equity markets broadly pulled back for the week. Global equities (represented by the MSCI All Country World Index) were down -2.12%, while domestic stocks (represented by the S&P 500 Index) were down -1.95%.

Shift From Large Cap to Small Cap

The big rotation in markets was a shift away from large cap growth companies to small cap equities. For the week, US small cap (measured by the Russell 2000 index) outperformed US large cap equities by over 3.6%. This is a continuation of a rotation that started the prior week.

Below is a great representation of underlying data pushing equity markets higher. As we move forward, earnings growth is projected to remain strong in both US large cap (blue) and small cap (purple) companies. Additionally, we should start to see growth pushed higher through small cap names after a very strong dominance in big US companies (especially big tech).

Retail Sales

Even though the monthly retail sales report came in flat month-over-month, it beat expectations for a decline. On the other hand, initial unemployment claims rose to 243k in a sign that the labor market may be easing.

Looking Forward

Investors should be on the lookout for Q2 GDP figures to be released on Thursday this week. Expectations are for another strong quarter of growth above 2% year-over-year.

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.

Mike Horwath

Mike heads the internal Investment Committee that is responsible for the investment direction of the firm. He works closely with Diversified’s financial planners to support the investment side of the lifelong financial planning process. Lastly, it’s Mike’s responsibility to oversee the ever-changing global investment landscape and work with the planners to evaluate the impact on each of our client’s strategies.

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Equities Pull Back Amid Broader Rotation to Small Caps

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