Watch the CPK Market Action Report: July 2024
The first half of the trading year is now officially behind us and thanks to the AI craze, investors have been able to achieve some very nice returns in a short period of time. Will the craze continue and possibly spread to other underperforming areas of the market or will an over-crowded AI play catch investors off guard with a sharp reversal of fortunes?
Watch the Market Action Report now:
Market Action Report
July 2024
INTRO TAG
The first half of the trading year is now officially behind us and thanks to the AI craze, investors have been able to achieve some very nice returns in a short period of time. Will the craze continue and possibly spread to other underperforming areas of the market or will an over-crowded AI play catch investors off guard with a sharp reversal of fortunes?
That action starts now!
INDEX PERFORMANCE RECAP
The Nasdaq was the big winner this month posting a 5.96% gain. The S&P 500 was also able to keep pace by gaining 3.47%. However, the Dow Jones Industrials were the laggard picking up just 1.12%.
EQUITY UPDATE
Tech stocks, particularly those associated with artificial intelligence, have led the charge to new highs in the Nasdaq and S&P 500 the entire year and have now created a very crowded trade. To avoid falling too far behind in performance, portfolio managers of many different investment products are now allocating to these stocks and creating a large amount of overlap in investor’s portfolios and potentially elevating the level of risk dramatically.
While the indices have been setting new highs, the actual number of stocks in the S&P 500 trading above their 50-day moving average is declining and has been less than half of the 500 stocks in the index since mid-April. While there is no guarantee, this is generally a warning sign that we might be headed for a correction.
BOND UPDATE
After a steady decline in yields all month, we did see a slight rise mostly in sympathy with rising global yields following the hot Canadian and Aussie CPI’s.
The 5yr closed at 4.32%, 10yr at 4.34% and the 30yr at 4.50%
The 10-year yield is consolidating the recent declines between the 4.20%-4.30% range and that will likely continue until the next major update on growth and inflation which really comes next week.
COMMODITY UPDATE
August WTI Crude spiked higher for the month to close out at $81.54/bbl. The combination of intensifying military offensives between Israel with both Hamas to the South and Hezbollah to the North, and aggressive comments by Russia about relations with Western nations sent global oil benchmarks higher in early trade with WTI futures gapping higher at the primary session open to top $82/barrel for the first time since late April.
The slow bleed in copper continued with futures falling to fresh multi-month lows. July Copper closed out at $4.39. The combination of weak economic data and hawkish Fed speak proved to be dual headwinds for copper. The near-term path of least resistance remains lower for copper with support from early 2024 between $4.20 and $4.30 coming into focus as economic worries continue to mount.
Gold steadily declined throughout the month to close at $2327.70/oz. Gold ended the month towards the middle of the June trading range bookended by aforementioned support at $2,300/oz. and resistance at $2,400/oz. leaving the yellow metal stuck in a sideways churn with currently neutral fundamental and technical backdrops.
CURRENCY UPDATE
Driven by foreign political anxiety and dovish comments from foreign central bankers, the US Dollar finished the month higher at $105.54. From a market standpoint, the US is the current bastion of political stability and that is what’s boosting the dollar, although it’s not likely a sustainable bullish factor.
ECONOMIC UPDATE
From a market standpoint, the soft reports at month end were well received and bolstered the case for Fed policy rate cuts in the months ahead, and potentially more cuts in less time. But the weak report also suggests that slowdown risks may be higher than most investors expect right now as a hard-landing and economic recession are not priced into stocks with the S&P 500 just barely off a record high.
THE WRAP
There is a huge bifurcation between the performance of the broader market and AI related stocks. This is not sustainable for the markets in the long term and should make every investor re-evaluate their current allocation and approach. Additionally, we did start to see some signs of a potentially slowing economy. Probably the most important indicator we need to keep an eye on is jobs as it is virtually impossible for a recession to take place with a strong jobs market.
CPK FOCUS
For the month of July, our models continue to hold a 50% allocation to the money market.
Our broad focus remains on Domestic Equities and Commodities.
Our focus in Domestic Equities is on Large Cap Growth, Large Cap Blend and Mid Cap Blend with an emphasis on Technology, Industrial, Financials, Consumer Cyclicals and Communication Services.
In Commodities, our focus is still on Industrial Metals and Precious Metals.
CPK DISCLAIMER
As a reminder, my current allocation is not a recommendation. Regardless of what happens next, investors like you need to have a simple and yet solid financial plan that reduces RISKS, COSTS and TAXES while securing the necessary income you need to maintain your lifestyle throughout retirement.
If you don’t have a plan OR you’re not comfortable with the plan you currently have, call me today to get pointed in the right direction.
I’m Chad Kunc and that puts a wrap on the July 2024 Market Action Report. Thanks for joining me. It’s time for me to get back to the markets.
And that action starts, NOW!