WEEKLY SUMMARY: Stocks, Bonds & Gold soar as inflation cools down
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Stocks were volatile this week with continued rotation in market leadership to small-cap and value shares. U.S. markets initially rallied to new-highs but faded toward week's end, led by weakness in the tech sector. The S&P 500 and Nasdaq closed lower on the week, while the Dow posted a solid gain. Value stocks outpaced growth stocks by 477 basis, as measured by Russell indexes—the largest divergence since March 2023. The week was also notable for a widespread global disruption to computer systems early Friday due to an error in a vendor’s security update to some users of the Microsoft operating system.
US stocks gained in the first notably broad advance since mid-April. The Dow Jones, S&P 500 Index and Nasdaq Composite moved to record intraday highs, but the biggest advance was notched by the small-cap Russell 2000 Index, which gained 6.00%, marking its best week since early November. Value stocks also handily outperformed growth stocks. Q2 earnings season kicked off Friday with releases from JPM, Wells Fargo and Citigroup. The first 2 missed estimates while the latter cut its outlook. A major factor supporting stocks appeared to be Thursday’s release of the US CPI as headline prices fell 0.1% in June, the first decline in 4 years. In the wake of the report, the Russell 2000 Index outperformed the large-cap S&P 500 and the Nasdaq by 209bps and 581bps respectively.
The S&P 500 is up 16% YTD, with the benchmark recording its 4th positive week in the last five as investors bet that any economic weakness later this year will be met with a Fed rate cut. The Nasdaq’s YTD gain is 22%. As measured by Russell 1000 indexes, growth shares outperformed value stocks by 415 basis points over the week, while small & mid caps recorded losses. Expectations for lower interest rates, fed by signs of weakening growth and easing inflation pressures, seemed to remain a major factor in favouring growth stocks. On Monday, the ISM posted its lowest reading of manufacturing activity (48.5) since February. More surprising may have been a sharp downturn in the ISM’s current services sector activity, which plunged from 53.8 in May to 48.8 in June.