Once again, popping out of book duty for a quick few notes to share.
The combination of the market action in July and yesterday’s presser made me look at several datapoints that I find fascinating. I want to share these five ideas that I believe are of much greater significance than many investors realize:
1. Small caps caught up with the Nasdaq 100 in July 2024: Have a look at the chart up top. After one of the largest performance gaps in history, the Russell 2000 just about caught up to the Nasdaq 100. As of July 30th, the total return of the Russell 200 was a mere ~1% behind the Nasdaq 100!
2. July was a normal consolidation, but… On the one hand, July was a normal consolidation and rotation away from the big cap winners broadening out to the rest of the market is healthy. The S&P 500 put up a +1.2% gain (14.4% annualized); 9 out of 11 sectors climbed); only tech and communication services did not. S&P 500 had 364 stocks positive in the month.
However, the gap between the underperformance of the NASDAQ 100 versus the Russell 2000 by 11.8% in July is the highest ever:
Said differently, Nasdaq underperformed by a historic amount:
3. The market is almost always wrong about what the Fed will do next: It may be hard to recognize in real-time, but the market has been utterly wrong about what the FOMC was going to do next (raise or cut rates) for all of the past two and half decades. (For the record, September now looks rather likely).
Source: Torsten Slok, Apollo
4. Reminder: Inflation peaked 2 YEARS AGO IN JUNE 2022
The Fed is ALWAYS late: Late to recognize inflation Spiking in 2021, the peak in June 2022, the subsequent collapse in 2023, and the bottom in 1H 2024.
As I have been saying for over a year, the FOMC should, have been cutting already – certainly May or June or July. As of August 1st, they are once again far behind the curve.
5. Political Regime Change?
I am constantly reminding readers that who controls the White House is (mostly) irrelevant to market returns. However, the error laden past few months of media coverage, polling, political wrangling and endless speculation needs to be called out for what it is: Malpractice.
And in case you forgot, the political polls — in 2016, 2018, 2020, 2022 — have all been uniformly terrible. People quoting these as if they are prescient is malpractice of the highest order.
The handwringing over Biden was likely Peak-Trump, the celebration over Harris is likely Trump-trough. The one wildcard I am wondering about is whether the Russian prisoner swap is Putin throwing in the towel. (I have no idea but the timing is it is intriguing)
That’s all for now, see y’all in September for the first rate cut since the pandemic…
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