Market Minute – July 12,2024

After 3 consecutive days of record-breaking closes for the S&P 500 and the Nasdaq this week, the indexes fell sharply on Thursday.  Wall Street saw a dramatic shift in market trends on Thursday, with winning and losing stocks swapping places for a day. This may turn out to be just what the rally needs to keep going.

The Russell 2000 small-cap index, which has struggled all year, jumped more than 3% on Thursday. Meanwhile, every stock Magnificent Seven fell, including a more than 5% decline for Nvidia and a 2.3% drop for Apple, which dragged down both the S&P 500 and Nasdaq Composite.

Bespoke Investment Group shared two statistics to demonstrate how rare it is to have that type of split.

• Thursday was just the second day since 1979 when the Russell 2000 rose more than 3% while the S&P 500 declined.
• The Nasdaq Composite underperformed the Russell 2000 by more than 5 percentage points in what appears to be the biggest daily gap on record. The only other time the gap came in above 5 percentage points was in November 2020, right after Pfizer shared positive results from a Covid-19 vaccine trial.

While the major market averages may show a decline for the day, this odd set of results could be a positive sign for the market. As we have noted the last few months, much of the recent rally has been driven by large tech companies. Know, a broadening of the market could be a signal of stability. One day does not make a trend, but it is a start.

“Today’s an important day,” Ed Yardeni of Yardeni Research said, “This is the day where investors are starting to rotate out of the Magnificent Seven into the rest of the market. I don’t think this is going to continue to pull the S&P 500 down — I think there’s going to be enough money to keep the leading stocks that have done so well elevated, but I think we are going to see more gains in the S&P 493, as well as in the small- and mid-cap stocks,” he added. Is the next sentence referring to OSFG, or Yardeni? Omnistar’s equity portfolios are designed to be evenly weighted. We do not want a select few stocks to dictate the movement in our strategies.

What is split trading? All of sudden something is mentioned that doesn’t correlate to the rest of the story. The contrast of movement in the indexes came after the June report for the consumer price index showed headline inflation declined last month and is now up about 3% over the past year. That bolstered confidence that the Federal Reserve will begin to cut interest rates as soon as September. Federal Reserve Chair Jerome Powell indicated in Congressional testimony this week that the central bank was aware that holding rates high for too long could hurt the economy.

Bottom line, it was refreshing to see a broader rally in the market, while magnificent seven retracted. But to put this in perspective, even though Nivida dropped 5% on Thursday, it was still positive for the week. One day of trading does not indicate a rotation or a pullback. We continue to monitor the short, mid and long-term trends in the market to make adjustment in our portfolios.

 ~ Roger Fuller

Portfolio Manager

*Bloomberg

*CNBC Online