Market Note – July 16, 2024

By Hightower Great Lakes on July 16, 2024

Market-Moving Data

June’s inflation data strongly supported the soft-landing narrative, with investors now fully pricing in a September rate cut. The Consumer Price Index (CPI) came in at 3% y/y, below estimates of 3.1% and below May’s 3.3% y/y reading.

Core CPI rose 3.3% y/y, the slowest since August 2021. Owners’ equivalent rent (OER), and shelter prices overall, have been the stickiest inflation factors. Shelter prices rose 0.2% m/m and OER rose 0.3% m/m, also the smallest gain since August 2021.[1]

Shelter prices increasing at a slower pace paves the way for inflation to continue falling, as shelter prices have accounted for nearly 33% of the total inflation basket.

Following the disinflation trends in CPI, and a slightly hotter-than-expected producer price index (PPI) print for June, markets saw a reversal in the second half of the week. The S&P 500 equal-weight index rose 2.72% in the week, with the Russell 1000 Value Index rising 2.61%.

The market-cap weighted S&P 500 rose .76%, with the Russell 1000 Growth Index falling 0.49%. On Thursday, the Russell 2000 closed up 3.7%, with the Nasdaq 100 closing -2.2% – the biggest relative outperformance on record.

Beaten-down industries resulting from the higher-for-longer narrative also rebounded last week, such as housing. With slowing inflation data and a well-balanced labor market, the Fed is beginning to see inflation slowing to its 2% goal thus pushing forward rate cut expectations. From Wednesday’s opening to Friday’s close, D.R. Horton (DHI) and Home Depot (HD) rose 11.4% and 5.87% respectively.

Chart 1: Underperforming Factors are Catching Up to the Outperformers[2]

Powell Gives Remarks on Capitol Hill

In a two-day event last week, Fed Chair, Jerome Powell, spoke to Congress for his semiannual monetary policy report. Powell noted that the committee is still waiting for further confidence that inflation is sustainably moving lower toward 2% but did state that recent inflation readings have shown modest further progress and that additional good data would strengthen their confidence.

The Fed adheres to a dual mandate: promoting maximum employment and stable prices. Since the start of their inflation battle in 2022, the Fed has only needed to focus on price stability, but Powell has mentioned recently that the Fed is now aware of “two-sided risks”.

He stated that the U.S. is no longer an overheated economy and that the job market has cooled from its pandemic-era extremes. Their focus is no longer solely on inflation – they are acutely aware of the labor market as it now appears to be fully back in balance.

Specifically, initial jobless claims have been moving higher over the last few weeks, although still down from recessionary levels. We’ll hear more at the next FOMC meeting, taking place at the end of this month from July 30-31^st.

Banks Kick-Off Q2 Earnings

Citigroup (C), JP Morgan (JPM), and Wells Fargo (WFC) began Q2 earnings season last Friday, reporting mixed results. JPM was a clear winner, with investment banking fees, advisory revenues, and equity and debt underwriting all up over 45% y/y.

Overall, JPM’s fee revenue rose 51% y/y, crushing the mid-teens guidance. C reported that 1.5% of U.S. card loans were 90+ days late in the second quarter, versus 1.6% in the first quarter and 1.1% a year ago, showing no signs of cracking across the U.S. consumer.

WFC reported total expenses above expectations at $13.3 billion, with management stating that net interest income could hit a trough by the end of the year.

We’ll be listening to the next round of bank earnings this week, with Goldman Sachs (GS) on Monday and Bank of America (BAC) and Morgan Stanley (MS) on Tuesday.

Fixed Income

Treasury yields held steady over the first half of the week after strong performance at the 3Y and 10Y auctions. June’s dovish CPI print, which surprised to the downside, drove yields lower across the curve with the 2-, 10-, & 30-year yields falling 15, 10, & 10 bps, respectively. The 2s10s inversion eased by 6 bp to -27 bps, the least inverted since late January.

U.S. credit ratings deteriorated last week as the main rating agencies issued 18 downgrades and 10 upgrades. Industrials led the downgrades, while Consumer Discretionary had the most upgrades. U.S. IG spreads and HY spreads remained unchanged on the week at +126 bp & +359 bp. Munis yields followed Treasuries as yields fell 4-15 bps across the curve.

The Week Ahead

Earnings – Monday: BLK, GS; Tuesday: BAC, JBHT, MS, OMC, STT, PNC, UNH; Wednesday: CFG, CCI, ELV, JNJ, KMI, NTRS, PLD, SYF, USB; Thursday: ABT, BX, CTAS, DHI, DFS, DPZ, EFX, ISRG, KEY, MTB, MMC, NFLX, SNA, STLD, TXT, UAL; Friday: AXP, FITB, HAL, HBAN, PPG, RF, SLB, TRV.

Economics – Monday: Empire State Index; Tuesday: Retail Sales, Business Inventories, NAHB Housing Market Index; Wednesday: Building Permits, Housing Completions, Housing Starts, Industrial Production; Thursday: Leading Indicators.

Return for Selected Indices^[3]

Click here to read last week’s Market Note (7/9).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

---

[1] Source: JP Morgan. As of July 12, 2024.

[2] Source: FactSet. As of July 14, 2024.

[3] Source: Bloomberg. As of July 15, 2024.