August 26th - Weekly Commentary

Weekly Market Commentary: Confidence and Resilience in the US Equity Market

This past week, US equities showed strength across the board, building on the momentum from last week’s impressive gains. The S&P 500 inched closer to its all-time high set in July, reflecting renewed optimism in the broader economy, while the small-cap Russell 2000 surged by 6.6% over the past two weeks—an encouraging signal for risk appetite and market breadth.

One notable metric that caught my attention is the breadth improvement in the S&P 500. Over 70% of the index's constituents now sit above their 50-day moving averages, a substantial recovery from just a few weeks ago when only 44% held that position. The rally in the equal-weight S&P 500 index, which closed at a new record high, further underscores broad participation beyond the usual mega cap growth names.

 

A couple of items to note: 

1) Our Morningstar 4-Star WealthTrust DBS Long Term Growth Strategies YTD Performance is ranked number 31 out of 1504 strategies from all asset classes on the SMArtX Platform.

     Our Morningstar 5-Star Balanced Strategy, the 70/30 Total Return is #2 and our 50/50 Conservative Growth and Income is #5 on the SMArtX Platform in the balanced category.

2) The top three performing companies this week in our WealthTrust Long Term Growth Portfolio are home builders or suppliers , Builders First, Pulte Group and Lenner Corp. We just recently added these based primarily on experience that when the Fed cuts interest rates, home builder perform well. As in 2002, the Fed cut interest rates and builders, and related companies were up when the market was down 22%.

3) Following our A.I. Momentum analysis, 75% of the companies in our strategy are primarily in individual equities, mostly large cap and mega cap companies verified by our 21-year history of quantitative, and fundamental analysis.

4) Following our three-year trend analysis program, 25% of the investments in our strategy are composed of 3 to 4 momentum passive ETFs.  Recently, we reduced our exposure in Technology, selling a significant portion of QQQ and replacing it with IWM, the Russell 2000 ETF; RSP, the S&P 500 Equal Weighted ETF; and IWB, Russell 1000 ETF. We've increased our position in Gold and Silver, which should perform well under various scenarios, including the weakening of the dollar and continued Geopolitical Problems around the world, and in the same risk off analysis, we've increased and added new positions in defense companies to the equities in the strategies.

 

WealthTrust Long Term Growth Portfolio Weekly Top 10

 

Sector and Industry Highlights

This week’s winners came from a diverse range of industries, with homebuilders, regional banks, autos, airlines, and travel stocks leading the charge. The resurgence of homebuilders aligns with a favorable housing data release that showed a significant uptick in new home sales. Meanwhile, banks, particularly regional ones, benefited from easing rate hike fears and a stabilizing credit environment. Despite mixed performance from big tech, Nvidia (+3.8%) stood out, continuing to ride the wave of AI optimism.

Conversely, energy stocks lagged as oil prices remained under pressure, reflecting concerns over global growth, particularly in China. Other relative underperformers included software, semiconductors, defense stocks, and China tech.

 

Fixed Income and Currency Markets

Treasuries strengthened across the curve, reflecting ongoing dovish signals from the Fed. The 2-year yield dipped back below 4%, while the 2s/10s curve showed tentative signs of re-steepening. The dollar’s decline continued for the fifth straight week, with the DXY index down 1.7%. This dollar weakness, driven by expectations of a September rate cut and broader macro concerns, provided a tailwind for gold, which ticked higher by 0.3%, reaching fresh record highs.

 

What Drove Market Sentiment?

The Fed remains front and center, as investors tried to parse the balance between economic resilience and risks of overtightening. The narrative evolved over the week, with contrasting signals from Fed officials. While there was acknowledgment of a softening labor market and disinflationary progress, some policymakers emphasized caution, suggesting that rate cuts should be gradual. The July FOMC minutes reiterated that a September rate cut is on the table, though the magnitude remains a topic of debate.

Economic data added nuance to the outlook. The preliminary revision to nonfarm payrolls revealed a substantial 818,000 job cut, the largest since the global financial crisis, aligning with concerns of labor market cooling. Additionally, while jobless claims were steady, continuing claims climbed to their highest level since 2021. On the brighter side, new home sales jumped 10.6% month-over-month, with June’s figures also being revised higher—a testament to the resilience of the housing market amid falling mortgage rates.

Fed Chair Powell’s remarks at the Jackson Hole conference took center stage. His dovish tone, emphasizing labor market weaknesses and reduced inflation risks, reinforced market expectations of a gradual approach to rate cuts. As a result, there’s now increased speculation around a potential 50 basis-point cut in September, although consensus remains firm for 25 basis points.

 

Corporate Earnings: Highlights and Lowlights

On the corporate front, standout performances from names like Peloton (+50.8%), Zoom (+20.8%), and Target (+10.0%) lifted market sentiment. Peloton’s upside came from better-than-expected revenue on connected fitness, while Zoom impressed with growth in its AI-driven contact center business. On the downside, companies like Advance Auto Parts (-21.0%) struggled, with earnings missing estimates and guidance being revised lower.

 

Looking Ahead: What to Watch

The coming week will bring us Nvidia’s much-anticipated earnings, which could set the tone for tech sentiment. Additionally, companies like Salesforce, CrowdStrike, and Lululemon are slated to report, which should provide further insights into consumer and enterprise trends. On the economic front, we’ll be watching July’s durable goods orders, consumer confidence figures, and Friday’s core PCE data, which remains a crucial gauge for inflation trends.

 

Sector Performance Recap

This week’s sector performance was led by real estate (+3.63%), materials (+2.39%), and consumer discretionary (+2.10%). On the other end, energy (0.50%) lagged as crude oil prices declined, while tech (+1.07%) delivered modest gains despite mixed results from some key players.

 

Final Thoughts

The resilience in US equities, coupled with broad-based sector participation, indicates a market growing increasingly comfortable with the prospect of a soft landing. However, risks remain, particularly around labor market dynamics and consumer health. As we head into the final stretch of the third quarter, staying nimble and monitoring incoming data closely will be critical to navigating what remains a complex economic landscape.