The Dow expanded upon its all-time high on Tuesday adding 1.79% as hopes for rate cuts and solid retail sales data boosted higher-beta sectors at the expense of previous Mega-Cap. leadership. XLC and XLK lagged as the unwind of the pro-growth trade continued.
The Industrials Sector paced the large cap. sector SPDR’s with XLI adding 2.49%, followed by the XLB Materials Sector SPDR which gained 1.94% on hopes that lower rates would re-accelerate economic Growth.
Rates and Commodities prices moved lower with the 10yr Yield hitting a multi-month low of 4.15%. Relief from higher rates has benefitted cyclicals in the near-term with the Russell 2000’s recent break-out as a prime example of the move to higher-beta, and an expansionary tape.
On the tactical front our Elev8 Sector Rotation Model is on the cusp of signaling a “sell” for XLC, as our relative strength trends are on the cusp of breaking to new lows which is our trigger in the current setup. We would take the XLC allocation to neutral weight in our portfolio on further weakness tomorrow.
Plenty on the Economic calendar with Mortgage Apps, Housing Starts and Building Permits, as well as the Fed. Beige Book release. The S&P 500 Homebuilders Index has been up 18% since July 11th, an it will be interesting to see if expectations have outstripped the data.
Wednesday is another busy earnings day, and it will be interesting to see if the rally in cyclical shares will continue or if the halo effect from the previous releases has been baked in at this point.
Eco Data Releases | Wednesday July 17th, 2024
| Date Time | Event | Survey | Actual | Prior | Revised | ||
| 07/17/2024 07:00 | MBA Mortgage Applications | 12-Jul | — | — | -0.20% | — | |
| 07/17/2024 08:30 | Building Permits | Jun | 1400k | — | 1386k | 1399k | |
| 07/17/2024 08:30 | Housing Starts | Jun | 1300k | — | 1277k | — | |
| 07/17/2024 08:30 | Housing Starts MoM | Jun | 1.80% | — | -5.50% | — | |
| 07/17/2024 08:30 | Building Permits MoM | Jun | 0.10% | — | -3.80% | -2.80% | |
| 07/17/2024 09:15 | Industrial Production MoM | Jun | 0.30% | — | 0.90% | 0.70% | |
| 07/17/2024 09:15 | Manufacturing (SIC) Production | Jun | 0.10% | — | 0.90% | — | |
| 07/17/2024 09:15 | Capacity Utilization | Jun | 78.40% | — | 78.70% | 78.20% | |
| 07/17/2024 14:00 | Federal Reserve Releases Beige Book |
S&P 500 Constituent Earnings Announcements by GICS Sector | Wednesday July 17th, 2024
MS and BAC among others look to keep a strong rally going for the Financial Sector after Goldman’s earnings were well received by the street. UNH also reports, and an upside break-out there would be material to the chart. However, UNH and the XLV have score low in our work. More interesting to us is the nascent strength in Financials and Consumer Discretionary. These sectors are showing signs of material bullish reversal which would be a bullish “tell” for the market as a whole.
World-Wide Wednesday: US Small Cap’s rip, Ex-US Equities yawn
While a combination of optimism on interest rate policy and resilient earnings and economics data have spurred rotation away from Mega-Cap. leadership in the US, there hasn’t been any sign of movement outside the US. EM and DM indices continue to shuffle along near YTD relative lows vs. MSCI ACWI. EM has at least held its steady on performance since bottoming in January, while EM broke to new relative low’s in June. We can see on the chart below that the pause in S&P 500 outperformance has clearly benefitted the Russell 2000. This is bullish for the US. As for sustained rotation into Small Cap. stocks, we are still somewhat skeptical given the nature of previous up-thrusts in performance from May to July 2023 and December 2023. We do, however, think a re-rate for the R2K is appropriate and alleviates concern about the average stock in the present bull trend.
- MSCI All-Country World Index (MXWD), 1yr, daily
- Panel2: S&P 500 Relative to MXWD, Russell 2000 Relative to MXWD, MSCI EAFE Index Relative to MXWD, MSCI EM Index Relative to MXWD
Sources: Bloomberg
