The weekly market reports include a market position update, a stock market forecast, and an analysis of capital markets. To access the full report, you must subscribe to Premium Articles, Weekly Premium Articles, or an All-in-One subscription.
Included in this report:
- Weekly summary.
- Tech woes.
- Market positioning update.
- Stock market forecast.
- Capital markets analysis.
1. Weekly Summary (July 15–July 19, 2024)
- All assets fell this week, except for the US dollar, on the heels of a political assassination attempt and a massive IT failure that affected millions of businesses around the world. Large-cap stocks (SPY) fell 2%.
- The fixed-income market came under pressure despite expectations of a rate cut in September. Long-duration bonds (TLT) fell 1.1% amid rising volatility.
- Commodities (DBC) plunged 3% amid a broad-based sell-off. For the week, crude oil lost 2.5% and gold was down 0.6%.
- The US dollar index (UUP) ended the week up 0.5%.
- Gold (GLD) has outperformed stocks (SPY) since January 3, 2022, with a return of 29.7% versus 20%, respectively.
- Since January 3, 2022, bonds (TLT) have been down 32.3%, while large-caps (SPY) have gained 20%.
- The equally weighted magnificent six stocks fell 4.9% for the week as the sell-off in overpriced tech stocks accelerated.
- The energy sector (XLE) gained the most this week, by 2.4%. The tech sector (XLK) fell by 5.5%.
All in all, the sell-off in tech stocks and uncertainty about the timing of a rate cut are driving volatility higher in all assets. This week was reminiscent of capital destruction during the 2022 bear market.
The standard deviation of the 5-day return spread between the Russell 2000 and S&P 500 is 1.46%, based on the available sample since 1979. This means that a 10% spread was a nearly 7-standard deviation event. What does this mean?
Below is a table of all events with a spread greater than 4 standard deviations, or +5.85%.
The subsequent 60-day returns of the Russell 2000 have been mixed and conditioned on the trend’s direction going forward. During the dot-com and GFC bear markets, the subsequent 60-day returns of the Russell 2000 have been negative, and during periods of rising prices, they have been positive. Therefore, these tail events do not provide any useful information without an assumption about the direction of the trend, as was expected.
2. Tech woes
Except for CrowdStrike (CRWD), which plunged 17.9% for the week due to the massive IT failure it caused, a large number of NASDAQ-100-listed stocks fell hard during the week, predominantly from the semiconductor sector.
Advanced Micro Devices (AMD) and Micron Technology (MU) plunged 16.5% and 14.4%, respectively. These are large losses, especially for investors who were late in the game. It appears that early investors are attempting to secure gains in fear of the tech market getting too crowded. As shown in the above table, several of the stocks that fell hard this week are already 20% or more below their all-time highs.
Below is our analysis of the drivers of the market and possible scenarios going forward.
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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