Weekly Commentary

July 12, 2024

This week witnessed another record-setting level for equity markets, as the inflation numbers released on Thursday gave investors hope of a more accommodative Federal Reserve, as well as a soft-landing scenario for the second half of the year.? Transportation costs as well as energy costs were the main contributing?factor for the surprise drop in month-over-month CPI in June, and markets reacted accordingly, with the 10-year yield falling to the 4.20% level, and the US dollar weakening against the euro.? It now seems that a Fed cut in September is back on the table, and we remain attentive to additional data that could confirm the soft-landing scenario, including Q2 earnings season, which has just gotten underway, and Q2 GDP, which comes out later in July.??

Speaking of earnings, the banks kicked off on Friday with generally lackluster results, as lower net interest margins and higher loan delinquencies have hit the bottom line.? Banks, which are a good barometer of the overall economy, also point to a soft landing as a higher for longer scenario last quarter hit consumers more than expected.? But in spite of the disappointing bank performance, there is little systemic risk in the banking system, and tech remains king—making for another record-setting day for the major indexes.??

It is also worth pointing out the recent outperformance of small caps vis-a-vis large caps, something that is also due to the expectation of a rate cut.? Smalls caps tend to outperform in a Fed loosening cycle, and have underperformed significantly, especially against large cap tech, so look for the Russell to be an interesting choice in the weeks to come.

Finally, the presidential election situation in the US has not been clarified this week, but it does appear that Biden continues to lose support, and we expect that he will in all likelihood bow out of the race sooner rather than later, barring an unexpected event.? The Republican convention starts next week, and Trump will announce his VP choice, but all eyes will be on a possible Biden exit.? ??