Macro Matters – Weekly review, w/c July 15
US stock averages hit new records as inflation cools and rotation shifts focus to value stocks. Treasury yields plunged post-CPI, raising expectations of a more dovish Fed. Meanwhile, the earnings season began with financials dipping, and political tensions heightened following an assassination attempt on Trump and Biden’s NATO summit gaffe.
TradeDay Macro Matters
Macroeconomic / Geopolitical Developments
• US stock averages hit new records as rotation dominates
• US inflation cools
• US yields plunge post-CPI, with a more dovish Fed anticipated
• US earnings season kicks off with financials dipping
• Trump assassination attempt; Biden gaffes, again
• What’s Ahead
US Stock Averages Hit New Records as Rotation Dominates
US stock averages soared to new records last week, driven by optimism that the Federal Reserve might begin cutting interest rates by September. The Dow Jones Industrial Average climbed 1.6%, ending the week at 40,001, up 6.1% year-to-date. The S&P 500 gained 0.9% to close at 5,615 (+17.7% YTD), while the Nasdaq edged up 0.2% to 18,398 (+22.6% YTD). A notable rotation saw large-cap value stocks outperforming growth stocks, signaling diversified profit growth expectations beyond tech giants like Nvidia.
US Inflation Cools
US inflation slowed significantly in June, with prices rising just 3% year-over-year—the slowest pace in a year—due to falling petrol prices and moderating rents. The monthly CPI dropped by 0.1%, the first outright decline in years, while core CPI rose only 0.1%. These developments have eased financial pressures on households and boosted expectations that the Fed might start cutting rates as early as September. Treasuries rallied post-CPI, with traders pricing in rate cuts for September and December.
US Yields Plunge Post-CPI, with a More Dovish Fed Anticipated
US Treasury yields plunged last Thursday following benign inflation data. The 10-year Treasury yield fell to 4.21%, while shorter-term yields showed minimal changes. Markets are now pricing in a 70% probability of a September rate cut, with expectations of additional cuts in November and December. Analysts predict the 10-year yield could return to 4%, further signaling expectations of a dovish Fed stance.
US Earnings Season Kicks Off with Financials Dipping
The US earnings season began with mixed results from major banks. JPMorgan Chase reported a rise in profits, driven by investment banking fees, but shares fell 1.2%. Wells Fargo’s stock dropped 6% after missing interest income estimates, while Citigroup saw a 1.8% decline despite strong investment banking revenue. These results reflect ongoing pressures from prolonged high interest rates and consumer financial strain.
Trump Assassination Attempt; Biden Gaffes, Again
Former President Donald Trump survived an assassination attempt at a Pennsylvania rally, suffering a minor ear wound. The attack, which resulted in one death and two critical injuries, has raised security concerns and heightened political tensions ahead of the election. Meanwhile, President Biden made another notable gaffe at the NATO summit, mistakenly referring to Ukrainian President Zelenskyy as “President Putin.” These incidents have intensified scrutiny of both candidates as the 2024 race heats up.
What’s Ahead
Central Bank Watch:
• ECB Interest Rate Decision and Monetary Policy Statement (Thursday)
Macro Data Watch:
• 07/15/2024: Chinese Industrial Production, Retail Sales, and GDP; German Retail Sales; EU Industrial Production
• 07/16/2024: German ZEW Survey; Canadian CPI; US Retail Sales
• 07/17/2024: UK CPI; EU CPI; US Industrial Production
• 07/18/2024: Japanese Trade Report; Australian Employment Report; UK Employment Report; ECB Interest Rate Decision
• 07/19/2024: Japanese CPI; UK Retail Sales; Canadian Retail Sales
Earnings Watch:
• 07/15/2024: Goldman Sachs, BlackRock
• 07/16/2024: United Health, Bank of America, Morgan Stanley
• 07/17/2024: ASML, J&J
• 07/18/2024: Netflix, Abbott Labs
• 07/19/2024: American Express
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