Macro Matters – Weekly review, w/c July 22

TradeDay Macro Matters

Macroeconomic / Geopolitical Developments

• Sector rotation continues as tech and growth stocks decline, small-cap and value stocks benefit

• US Retail Sales solid

• Fed rate cuts expected from September

• ECB leaves rates unchanged

• Pressure grows on Biden to step aside

• What’s Ahead

Sector Rotation Continues as Tech and Growth Stocks Decline, Small-Cap and Value Stocks Benefit

The US stock market is undergoing a sector rotation, with small-cap and value stocks gaining traction as tech and growth stocks falter. This shift is driven by expectations of Fed interest rate cuts and improving prospects for Republican presidential candidate Donald Trump, whose policies are seen as favorable to smaller domestic companies. The Russell 2000 surged 11.5% over five days, its biggest gain since April 2020, while the tech-heavy Nasdaq 100 fell 3%, including its largest one-day decline of the year. While the S&P 500 posted a modest 0.2% gain, the outperformance of small-cap stocks highlights investor diversification into overlooked market segments.

US Retail Sales Solid

US retail sales remained flat in June, demonstrating consumer resilience despite a drop in receipts at auto dealerships. The Commerce Department revised May’s sales to a 0.3% gain, bolstering confidence in the economy amid cooling inflation. Year-over-year, retail sales rose by 2.3%, reflecting shifts in consumer behavior towards cheaper alternatives. Excluding gas prices and auto sales, retail sales increased 0.8%, underscoring the underlying strength of US consumer spending.

Fed Rate Cuts Expected from September

Fed Chair Jerome Powell has indicated that the September meeting could mark a policy shift towards rate cuts, contingent on favorable inflation and labor market data. While the Fed is expected to maintain rates at 5.25%-5.50% during the July meeting, market participants anticipate a potential rate cut in September as part of a broader transition to easing monetary policy.

ECB Leaves Rates Unchanged

The European Central Bank left its key deposit rate at 3.75%, signaling caution about further adjustments. ECB President Christine Lagarde highlighted risks to growth while attributing recent inflation to temporary factors. The euro initially held steady but fell against the dollar amid expectations of future rate cuts, as markets priced in additional reductions later this year.

Pressure Grows on Biden to Step Aside

President Biden faces mounting pressure to reconsider his 2024 candidacy due to concerns about his ability to secure victory against Donald Trump. Reports indicate that influential Democrats, including former President Obama, have advised Biden to evaluate the viability of his campaign. Despite his insistence on running, growing unease among party leaders underscores doubts about his prospects for reelection.

What’s Ahead

Central Bank Watch:

• People’s Bank of China Interest Rate Decision (Monday)

• Bank of Canada Interest Rate Decision and Monetary Policy Statement (Wednesday)

Macro Data Watch:

• 07/22/2024: PBoC Interest Rate Decision, German Retail Sales

• 07/24/2024: German GfK Consumer Confidence, Global PMI, BoC Interest Rate Decision

• 07/25/2024: German IFO Report, US GDP and Durable Goods Data

• 07/26/2024: Japanese CPI, US PCE (MoM, YoY), Michigan Consumer Sentiment Index

Earnings Watch:

• 07/22/2024: Verizon

• 07/23/2024: Alphabet, Tesla, Visa, Coca-Cola

• 07/24/2024: Qualcomm, IBM

• 07/25/2024: AbbVie, Union Pacific

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