August 11th - Weekly Commentary
Overview
This past week, U.S. equities experienced declines, though major indices managed to recover somewhat from the losses incurred early in the week. The S&P 500 and Nasdaq both faced substantial pressure, with Monday marking the S&P's worst daily decline since September 2022 and the Nasdaq's worst since October 2022. The downturn was initially sparked by last Friday's disappointing July nonfarm payrolls report, which fueled concerns about the potential for a hard economic landing.
The broader market narrative for the week revolved around soft versus hard landing dynamics, speculation about potential Federal Reserve responses, including intermeeting rate cuts, and discussions on the unwinding of global carry trades. Despite these concerns, the S&P 500 ended the week less than 6% below its July 16th record close, although the Nasdaq remained in correction territory.
Of note, the WealthTrust Long Term Growth Strategy ended up for the week.
WealthTrust Long Term Growth Portfolio Weekly Top 10
Sector Performance and Market Drivers
The tech sector was a focal point this week, with most major players seeing declines. However, Meta Platforms (META) stood out with a 6.1% gain, defying the overall trend. In contrast, several sectors underperformed, including managed care, MedTech, biotech, oil services, paper/packaging, industrial metals, building products, and utilities.
On the other hand, certain sectors managed to outperform the broader market. Semiconductors, software, engineering and construction, refiners, and obesity pharmaceuticals showed relative strength. Notably, Eli Lilly (LLY) surged 10.8%, driven by positive developments in its obesity drug pipeline.
Treasury yields were generally higher, reflecting some curve flattening, as the market absorbed $125 billion in new issuance. While the 3-year auction was well received, the 10-year and 30-year auctions encountered some resistance. The dollar remained relatively unchanged, while gold posted a modest gain of 0.1%. Oil prices, however, rebounded sharply, with WTI crude rising 4.5%, marking its best week since March, partly due to ongoing geopolitical concerns.
Key Market Events
The week's market action was heavily influenced by the ripple effects of the weaker-than-expected July payrolls report, which stoked fears of an impending economic downturn and a Federal Reserve lagging behind the curve. These concerns were amplified by discussions over the weekend, leading to a global risk-off sentiment on Monday. The VIX, a key measure of market volatility, saw its largest-ever intraday spike, reaching nearly 66 before settling above 38.
Despite these concerns, some analysts began to advocate for an alternative scenario where U.S. economic growth remains robust, and the disappointing jobs report could be attributed to transitory factors such as weather. Additionally, there were discussions about market drawdowns as a normal feature of equity markets, with the S&P 500 still only 6% below its mid-July record high.
Federal Reserve officials also weighed in throughout the week, offering a more measured perspective. Chicago Fed President Goolsbee emphasized the importance of not overreacting to a single economic release and focusing on the totality of the data. San Francisco Fed President Daly echoed this sentiment, advising patience and highlighting the strength of the labor market as a buffer against economic downturns.
Corporate Earnings Highlights
The ongoing Q2 earnings season continued to deliver results, albeit with mixed reactions. On the positive side, several companies posted strong performances, including, Ely Lilly, Lumen Technologies, which soared 81.4% on the back of $5 billion in new AI-driven business, and Upstart, which gained 52.6% after exceeding earnings expectations and providing strong guidance.
Conversely, some companies struggled, including Monster Beverage (MNST), which fell 10.8% after missing earnings expectations, and McKesson (MCK), which dropped 14.2% due to a lower-quality earnings beat and guidance cuts for its U.S. Pharma segment.
Looking Ahead
Next week promises to be eventful, with several key economic releases on the calendar. Investors will be closely watching July's Producer Price Index (PPI) on Tuesday, the Consumer Price Index (CPI) on Wednesday, and July's retail sales figures, also on Wednesday. The preliminary August University of Michigan consumer sentiment and inflation expectations report on Friday will also be of particular interest, given recent disinflation trends.
The earnings season will continue, albeit with fewer major reports as over 90% of S&P 500 constituents have already reported. However, some big names, particularly in the retail sector, are still set to release results, including Walmart (WMT), Home Depot (HD), Cisco (CSCO), Applied Materials (AMAT), and Deere & Co. (DE).
As we move into the coming week, the market outlook remains cautious, with concerns about the strength of the consumer, AI-driven optimism beginning to wane, and a challenging macroeconomic environment. Investors will need to navigate these uncertainties carefully, balancing near-term risks with long-term opportunities.