July 8, 2024 | Shifting Narrative, Catalysts Ahead

?MARKETS

S&P 500: Down -1 point to 5567, VIX: 12.39

Asia: Japan -0.32%, China -0.93%, Hong Kong -1.55%

Europe: Euro Stoxx 50 -0.19%, FTSE -0.13%, DAX -0.02%

FX: USD (DXY) up 0.07%, EUR down 0.08%, GBP up 0.01%, JPY down 0.01%, CNY up 0.01%

Energy: WTI Crude down 0.70% to $82.59, Brent down 0.62% to $86.01

Cross markets: Terminal rate unch at 5.33, Implied rate cuts 2-years from terminal up ~12bp at 163bp, 5/10 yield spread +5bp

Treasuries: 2-year yields up ~1bp at 4.616%, 10-year yields down ~1bp at 4.271%, 30-year yields down ~2bp at 4.462%

WHAT WE'RE THINKING

Snapshot: US equities are mixed and off best levels after the S&P 500 (SPX) and Nasdaq 100 (NDX) closed at all-time highs on Friday. Renewed strength in semis puts Tech at the top of the sector performance rank. Shares of INTC outperform after several companies (MSFT, DELL, HPQ) highlighted new AI PCs. TSM is also higher on upbeat sell-side commentary and reports of new chips to be launched on its 3nm process during Q4.??GLW is the best performing stock in the SPX after a positive preannouncement that also provides a tailwind for optical transceiver stocks like COHR and FN. Otherwise, there’s relatively narrow performance dispersion with banks, travel/leisure, and consumer discretionary relatively healthy, while software lags after a sell-side downgrade of NOW also weighs on DAY, PANW, ADBE and FTNT.??Mega-cap internet names, Energy, Staples and Transports are other pockets of weakness. Treasury yields are narrowly mixed after last week’s data-induced pullback.??Treasury supply will be in focus ahead of another big week of issuance. FX trends are quiet with the Dollar Index a touch higher.??Commodities are mostly under pressure to start the week with gold, copper and WTI crude lower on the day.??

• It’s a fairly quiet session with markets mostly in waiting mode ahead of inflation data and the start of Q2 earnings season later this week.??
• June CPI will be released on Thursday with PPI and earnings from a handful of large cap banks on Friday.??
• This week also brings speeches from 10 different Fed officials including Powell who provides his semi-annual monetary policy testimony to Congress tomorrow and Wednesday.
• The Treasury will sell nearly $120B in?3,10 and 30-year?bonds this week.
• The NY Fed’s consumer inflation expectations index for June was out this morning with MoM declines in the one-and five-year forecasts coming from slower price gains in rent and food components. Three-year inflation expectations ticked slightly higher.
• The weekend press remained consumed with reports about whether Biden will exit the race with expectations for more clarity late this afternoon. Election results from France ensure political gridlock, which generally helps equity markets.
• We’re still in unofficial earnings preannouncement season with this morning’s positive warning from GLW as a reminder of positive AI-related spending trends.
• Shares of transport equipment supplier GBX are sharply lower after a decline in FQ3 revenue and tepid guidance reminds investors of a more challenging capex environment in other parts of the economy.

Narrative: Last week’s macro data saw the prevailing market narrative shift from Goldilocks to soft landing.??The shift was mostly triggered by weaker than expected ISM data with ISM services falling -5 points MoM into contraction.??Last week’s downbeat durable/capital goods data also fits with signs of a weakening housing sector. Last week’s labor market data including Friday’s Jobs Report point to softening but not soft labor market conditions.??The soft-landing narrative only needs inflation data to cooperate with Thursday’s CPI and Friday’s PPI prints as key catalysts.

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Home prices: The housing market is a key space to watch given that construction employment has long been a leading indicator for national employment and a decent proxy for an impending recession. The SPDR S&P Homebuilders ETF (XHB) outperformed the SPX in Q1 by ~6.6 percentage points, but has recently come under pressure, losing -9.4% in Q2 vs. the SPX up +3.9%. We’re only a week in, but QTD the XHB is down -3.1% vs. a +2% gain for the SPX.??From a fundamental perspective, we can say that affordability remains challenged with buying cheaper than renting in only 1% of US metro areas. And rent prices continue to moderate in the largest metro areas and nationally. Utilization of adjustable rate and interest-rate only mortgages also remain near all-time lows. Given its impact on household net worth, falling home prices could negatively impact confidence and consumption.

FACT OF THE DAY

On the second day of the 1972 eleven-day trip to the moon and back, command module pilot Ken Mattingly lost his wedding ring, saying it just “floated off somewhere, and none of us could find it.” It wasn’t until the ninth day during a spacewalk when fellow astronaut Charlie Duke exited the spacecraft to check on Mattingly when he noticed the wedding ring floating out the hatch door. Duke tried to grab it but failed.??The ring would have been lost to the vastness of space but miraculously bounced off the back of Mattingly’s helmet, reversed course and returned to the vehicle through the hatch. Duke said he was able to secure it shortly thereafter.? ?

JSC IN THE MEDIA

Fox Business News: Andrew joins Charles Payne on Making Money to discuss risks to the soft landing scenario and factors necessary to sustain the current bull market. Watch Video

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Arm Holdings (ARM) is Not a Beneficiary of A.I. Right Now: Although ARM fell following underwhelming F25 revenue guidance, Andrew highlights how the company is on track to ultimately benefit from increased demand for accelerated compute and A.I. workloads. Watch Video

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Macro Outlook and Mega Cap Tech: Andrew Graham joins Oliver Renick to discuss the outlook for mega cap tech and inflation, as well as Alphabet (GOOGL) and the A.I. race. Watch Video

See more of JSC in the Media.

THIS DAY IN HISTORY

July 8th, 1776: The first public reading of the U.S. Declaration of Independence is given.

CATALYST CALENDAR

Tomorrow: 1) Taiwan’s exports for June; 2) Powell’s testimony before the Senate; 3) Japan’s PPI for June; 4) China’s PPI/CPI for June; 5) New Zealand’s rate decision; 6) Earnings before the open: HELE; 7) Earnings after the close: SGH

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Wednesday: 1) US wholesale inventories/trade sales for May; 2) Powell’s testimony before the House; 3) Australia’s consumer inflation expectations for July; 4) South Korea’s rate decision; 5) Earnings after the close: AZZ, PSMT, WDFC

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Thursday: 1) US CPI for June; 2) UK industrial/manufacturing production and GDP for May; 3) China’s imports/exports for June; 4) Earnings before the open: CAG, DAL, PEP

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Friday: 1) US PPI for June; 2) Japan’s industrial production for May; 3) India’s CPI for June and industrial production for May; 4) The Michigan sentiment report for July; 5) Earnings before the open: BK, C, FAST, JPM, WFC

Jackson Square Capital produces Inside Markets. We also offer financial planning and investment management services. Learn more here and catch up on our recent media appearances.

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