Market Note – July 23, 2024

By Hightower Great Lakes on July 23, 2024

Earnings Ramp-Up

Through July 19, 14% of the S&P 500 has reported Q2 2024 results, with 80% reporting a positive earnings per share (EPS) surprise. As it stands, the current blended Q2 EPS growth rate is 9.7% y/y, the highest since Q4 2021. The Mag 7 have yet to report but are still expected to see strong y/y earnings growth.

Amazon (AMZN), Alphabet (GOOGL), Meta (META), and Nvidia (NVDA) are predicted to grow earnings 56.4% y/y in the second quarter, relative to the other 496 S&P 500 constituents at 5.7% y/y. This week we will hear from many companies, with over 30% of the index reporting Q2 results.

A few companies we follow reported strong results last week. D.R. Horton (DHI) beat on revenue and EPS, with homes closed in the quarter increasing 5% y/y to ~24,000.

Management mentioned that even with elevated inflation and mortgage rates, the supply of both new and existing homes at affordable price points remains limited, and demographics supporting housing demand are favorable. The board recently approved a new share repurchase totaling $4 billion, with the stock rising 14% in the week.

SLB (SLB) beat on nearly all reported metrics with eight out of their twelve geographical segments posting record-high quarterly revenue. Management is focused on margin expansion, selecting projects with the most operational leverage. The U.S. is the slowest growing region for SLB, which will likely change if former President Trump is elected. The stock was up nearly 7% in the week.

Bank of America (BAC) reported mostly in line with strong growth in investment banking (+23% y/y), wealth management (+6% y/y), and trading (+6.7% y/y).

They also experienced solid organic growth with 278,000 new checking accounts, one million new credit card accounts, and over 6,000 new relationships in global wealth and investment management. They expect Q4 2024 net interest income to be 4-5% higher than the previous quarter, totaling around $14.5 billion.

Chart 1: Catch-Up in Earnings Growth Rate for ex-Mag 7 Names by Q4 2024[1]

More Sector Rotation

The S&P 500 finished -2% last week with broader indices, such as the Russell 2000, up 2.3% and the S&P 500 equal-weight index rising 40 bps. News regarding possible restrictions on exports from chipmakers in China pushed semiconductor companies lower, with the VanEck Semiconductor ETF closing nearly -10% on the week.

There has been a 180-degree flip in sector performance recently, with the worst-performing sector YTD, real estate, being the top-performing sector over the last month by +5.2%.

Technology, which was the top performing sector, is -4.4% over the last month but still up 15% on the year. Slowing inflation and economic data have pushed rate cut expectations forward. A September rate cut is almost fully priced in with a 93% probability as of Friday afternoon.

Chart 2: Volatility Increases in July, With Indices Lower[2]

Fixed Income

Treasury yields rose last week; the 2, 10, & 30-year yields rose 6, 6, & 2 bp respectively. The 2s10s inversion stayed at -27 bps, the least inverted since late January. U.S. credit ratings deteriorated last week as the main rating companies issued 40 downgrades and 21 upgrades; financials had the most downgrades, while energy had the most upgrades.

High-yield issuers led the downgrades with 30. U.S. investment grade spreads widened by 2 bp to +128. High yield spreads tightened by 4 bp to +351. Muni yields fell 1-3 bp across the curve.

The Week Ahead

Earnings – Monday: TFC, VZ; Tuesday: GOOGL, COF, CMCSA, ENPH, FCX, GE, GM, GPC, IVZ, KMB, LMT, MCO, MSCI, PM, STX, TSLA, TXN, KO, SHW, UPS, V; Wednesday: ALGN, T, BSX, CMG, CB, CME, F, GEV, GD, IBM, LVS, NEE, ODFL, ROP, NOW, TMO; Thursday: ABBV, AAL, CBRE, DECK, DLR, DOW, EIX, HAS, HON, KDP, NDAQ, NEM, NOC, ORLY, PCG, RTX, LUV, TSCO, UNP, VLO; Friday: MMM, AON, BKR, BMY, CL, PFG, TROW.

Economics – Tuesday: Existing Home Sales; Wednesday: Building Permits, PMI Manufacturing, PMI Services, New Home Sales; Thursday: Durable Orders, Durable Shipments, Q2 GDP; Friday: Core PCE, Personal Income, Michigan Consumer Sentiment.

Return for Selected Indices^[3]

Click here to read last week’s Market Note (7/17).

Disclosures

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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.

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[1] Source: FactSet. As of July 19, 2024.

[2] Source: FactSet. As of July 19, 2024.

[3] Source: Bloomberg. As of July 22, 2024.