The rotation from the longer-dated secular growth stocks such as those within Communication Services, Consumer Discretionary and Technology that began a couple of weeks ago continued through Friday. We view the broadening of the rally as healthy and expect it to continue through the remainder of the Summer. We also think that the rhetoric surrounding the upcoming mid-term elections in November will move from the back burner to the front which should also heighten investor anxiety. However, we believe that any meaningful pullback, should it come, would be a welcome opportunity to add to positions in equities, as the economy remains strong and the AI revolution is still in its early innings.
· Kevin Warsh will conduct his second meeting of the Open Market Committee (FOMC) as the Fed Chair this coming Tuesday and Wednesday and although we wouldn’t say a hike is off the table, we still consider it unlikely. Given the strength of the economic data along with the current inflation concerns, a rate cut is off the table. What will be of interest is the policy statement issued by the committee immediately following the meeting along with Warsh’s press conference shortly thereafter.
· Shares of SpaceX (SPCX) continued to slip further below its IPO price of $135 approximately one month ago and from its closing price last Friday of $124.14 to $115.07 this week. Shares peaked at around $230 shortly after going public. You can nibble at shares and we have. However, it remains like trying to catch a falling knife.
· Shares of Alphabet (GOOGL) came under selling pressure again this past week as the company posted Q2 earnings that impressed, especially their cloud revenue which rose 82% y/y. That didn’t assuage investors who were more keenly focused on their announcement that capital expenditures are expected to rise to a range between $195 and $205 billion from a previously anticipated $180 billion to $190 billion. Justifiably so, investors want to see these hyper-scalers begin to monetize these expenses. We will get additional data when Microsoft (MSFT), Meta Platforms (META) and Amazon (AMZN) report their earnings this coming week.
· Interest Rates Rose All Along the Treasury Yield Curve This Past Week as a result of increased military action in Iran which was understandably accompanied by higher energy prices. Also of note was the attack by the Houthis on ships on the Red Sea. The yield on the 2-Year US Treasury Note rose fifteen basis points to 4.33% while that on the 10-Year jumped fourteen basis points to 4.69%. As a point of reference those two debt instruments yielded 3.47% and 4.18% at the end of 2025. Rising interest rates provide added competition for risk assets such as stocks.
Economic Data That Drove Market Sentiment This Past Week…
- The U.S. Census Bureau reported that New Single-Family Home Sales rose 10,000 during June to a Seasonally Adjusted Annualized Rate (SAAR) of 628,000 from 618,000 during May (-5.6% y/y). Sales of New Homes have fallen 39.1% from their peak of 1.031 million in October 2020 and 50.9% from the peak in July 2005 of 1,279,000 units. However, they have risen 21.0% above their July 2022 low of 519,000. The median sales price of a new home slipped 3.3% (-9.5% y/y) to $398,300 in June from $412,000 in May, this as the average sales price of a new home fell 9.5% (-6.5% y/y) to $475,400 from $525,200. The average price is now 12.2% below the high of $541,200 in July 2022. These sales prices are not seasonally adjusted. The number of unsold new homes on the market fell 0.1% to 485,000 (-3.4% y/y) from 486,000 in May. The seasonally adjusted months’ supply of new homes for sale fell to 9.3 months in June from 9.4 in May as the median number of months a new home stayed on the market remained at 3.6 months during June when compared to May, well off the high of 5.1 months in March 2021. (Source, U.S. Census Bureau)
- Initial Claims for Unemployment Benefits for the week-ended July 18th fell 22,000 to 187,000 from 209,000, which were revised up by 1,000. Meanwhile, the four-week moving average fell 7,250 to 207,500 from 214,750, which was revised 500 higher. Continuing claims for the week-ended July 11th fell 2,000 to 1,796,000 from 1,798,000 the prior week. The continuing claims four-week average fell 4,000 to 1,805,250 from 1,809,250. (Source, U.S. Department of Labor)
- The Conference Board reported that its U.S. Index of Leading Economic Indicators edged 0.1% lower during June, after edging 0.1% higher in May. The US LEI has fallen 0.3% over the trailing six months, a substantial improvement from the 1.1% drop over the previous six months. According to Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators at The Conference Board, “while some components of the LEI were little changed, the largest positive contribution came from the yield spread, followed by marginal positive input from the remaining financial components, were not enough to offset weak consumer expectations and a drop in building permits across most of its categories. Despite the recent decline, the LEI’s six- and twelve-month growth rates, while negative, were stable.” (Source, The Conference Board)
Economic Reports scheduled to be released this week, include the following – on Monday, June Durable Goods Orders; on Tuesday, June U.S. Trade Balance, June Wholesale Inventories and June Consumer Confidence; on Thursday, Initial Weekly Claims for Unemployment Benefits, June Personal Income and Spending and the Initial Estimate of Second Quarter Gross Domestic Product (GDP); and, on Friday, Second Quarter Employment Cost Index and the Final Reading on June Consumer Sentiment from the University of Michigan.
Several potentially market moving companies are scheduled to report earnings, to include AstraZeneca (AZN), Visa (V), Microsoft (MSFT), Coca-Cola (KO), Meta Platforms (META), Proctor & Gamble (PG), Arm Holdings (ARM), Lam Research (LRCX), UBS Group (UBS), Apple (AAPL), Shell (SHEL), Amazon (AMZN), Mastercard (MA), AbbVie (ABBV), Chevron (CVX), ExxonMobil (XOM) and Linde (LIN).