July 27, 2024 Market Update

Wall Street had its worst day since 2022 this past Wednesday, with the Nasdaq falling by more than 3 percent and losing more than one trillion in market value in a single day.  The last two trading days offered some relief helping the S&P 500 Index and the Nasdaq pare some of their losses and the Dow post small net gains to end the week.  The Russell 2000 small cap index, on the other hand, continued to tread higher and posted a 3.5% gain for the week.

Meanwhile the bond market was relatively calm with the 10-year Treasury yields dropping slightly.  The municipal bond market continued to see positive inflows for the third consecutive week indicating strong demand.   The Vanguard Total Bond Market ETF (BND), a proxy for the overall bond market, gained 0.30%.

There has been a noticeable rotation from large growth stocks to large-cap value and small cap stocks recently as investor enthusiasm for artificial intelligence has started to wane.  Last week, several large-cap growth companies released earnings reports that either missed expectations or provided lower-than-expected future guidance.  In contrast, value stocks have been outperforming as investors seek stability and potentially undervalued opportunities.

While the stock market sell-off reflects growing investor anxiety, it does not appear to fundamentally undermine the odds of a soft landing for the U.S. economy, where the inflation rate returns to the Federal Reserve’s 2% target without triggering a new recession.  In fact, this past week’s GDP and inflation data confirms that the economy is still growing.  The economy's underlying resilience, supported by strong consumer spending and a robust labor market, suggests that a severe recession is unlikely in the near term.  

If a soft landing is achieved, does the Federal Reserve deserve the credit, or was it due to external factors outside the Fed’s control?  This is the subject of a recent article I posted on The Milwaukee Company’s website.  You can find that article here. 

That’s all for now.  Have a great weekend and invest wisely my friends.