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Market Commentary

July 23, 2024
 
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Stocks rallied broadly on Monday as the indices try to make up some of the ground they lost last week.  The Mag 7 stocks were all up solidly, but so were the small caps so it was a broad rally and not so much rotation.  The I-fund also had a good day, while bonds were down slightly after a move up in yields.  The departure of President Biden from the 2024 race makes things interesting as may be changing the election year seasonality chart, which was very favorable. 

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Another Monday rally and, according to our forum member JTH, we have had 11 straight positive Tuesdays.  However, last week reminded us that a good start to a week isn't always a sign of how the week will end up at the close on Friday.

The talk on Wall Street is that tech stocks did did well because Kamala Harris, the new democratic frontrunner, is more tech friendly that either Biden or Trump.  I don't know about that since we've had a streak of strong Mondays in the stock market, but one thing did change with Joe Biden now out of the race; we no longer have an incumbent so there's no "sitting president running" and with the new "open field", it changes the election year seasonality chart quite a bit. 

   

Seasonality charts are not generally a primary indicator, but that's quite a difference between the green and red averages.

Yields were up slightly yesterday but the 10-year Yield remains below the 200-day EMA, which it has been dancing above and below for several weeks.  The market would most likely prefer this to stay below that average, and the trend is down, but a move above the average might actually say something good about the economy - or could it be inflation concerns as we head into Friday's PCE Reports?

      
     

As exciting as the tech rally has been, the usual suspects are sounding the alarm on company valuations.  John Hussman has been doing this a long time and looking at this next chart, you can understand why he's concerned about the stock market.

From hussmanfunds.com:  "Valuation review - The chart below shows our most reliable valuation measure, based on its correlation with actual subsequent S&P 500 total returns in market cycles across history, in data since 1928. The blue line shows the market capitalization of U.S. nonfinancial equities as a ratio to their gross value-added, including our estimate of foreign revenues. MarketCap/GVA now stands above both the 1929 and 2022 extremes, and is also easily above the 2000 and 2007 peaks."

  
       Chart Source: https://www.hussmanfunds.com/comment/mc240721/


With the ability to move in and out of stocks at will for the private investor, or a couple of times a month for us TSP'ers, I don't get too caught up in the long-term warnings signs.  I could always sell everything today if I wanted to.  But this data should not be completely ignored because it is probably a matter of when, not if, this market has a serious correction, or worse.  Will it start today?  Not likely but that's why I watch it.

Microsoft, Alphabet (aka Google), and Tesla will report earnings after the bell toady, kicking off the Magnificent 7 earnings season.  Next week Meta, Apple, and Amazon will report.  Nvidia doesn't report until the end of August. 

On Friday we get the June PCE Prices report which is a key Fed inflation indicator.  Both are expected to tick up from the May report.

PCE Prices For June: Briefing.com Consensus: 0.1% | Prior: 0.0%

Core PCE Prices For June: Briefing.com Consensus: 0.2% | Prior: 0.1%
 



The S&P 500 (C-fund) had a good start to the week with a gain of over 1% on Monday.  After failing at the 20-day EMA last week, yesterday's rally put it back above the average, and it also shows the rising support off the lows has held nicely - at least on this first test.  There is an open gap above that could be the target, or we could just see more news highs, as has been the trend all year.

      


The DWCPF (S-fund) led with a 1.38% gain yesterday.  The day didn't start out that way as the S&P 500 (C-fund) was up big early on Monday, but the DWCPF was trading down, testing Friday's lows, before it bounced back and arguably created positive outside reversal day.

      


The EFA (I-fund) was also up 1% but it still has a little work to as it lingers below a couple of resistance areas, and it may need the dollar to come down to break through that resistance.

      


BND (bonds / F-fund) slipped lower again so the consolidation off the recent highs continues.  I wish it would just fill that open gap and get it over with.  It's almost there but it could have a little further to go.  Then there's more open gaps below, plus the bottom of the channel would be in play if those gaps do get filled.  The PCE report on Friday could bring those into play if it comes in too hot.

      


Thanks so much for reading!  We'll see you back here tomorrow.

Tom Crowley


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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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