07/29/2024 | News release | Distributed by Public on 07/29/2024 13:56
Oh, how the tables have turned. The Russell 2000 Index outperformed the S&P 500 Index for the third straight week, as Big Tech/The Magnificent Seven/The Mag Three/The One (i.e., NVIDIA), whatever moniker one uses to describe this year's stock leaders, continued to come under selling pressure. Since peaking on July 10th, the Magnificent Seven (i.e., Apple, Alphabet, Amazon, Meta Platforms, Microsoft, NVIDIA, and Tesla) are down collectively 13%. While earnings reports from Alphabet and Tesla came in largely as expected last week, expectations are high for Big Tech earnings, and last week's stock reactions (e.g., the NASDAQ Composite ended lower for a second straight week) are telling of investors' current mood on the group after such large first half gains/stretched valuations.
In total, mixed performance across stocks last week, the start of Big Tech earnings, a mostly in-line June personal consumption expenditures (PCE) inflation report, mixed preliminary looks at economic activity, and a stronger-than-expected first look at second quarter U.S. GDP largely colored the week's market activity.
Last Week in Review:
Keep an Open Mind About Evolving Market Conditions
As July comes to an end this week, the Russell 2000 is on pace for its best month since December 2023. The relative outperformance of small-caps versus large-cap growth this month is particularly wide, suggesting investors have already started to act on narrowing the large year-to-date gaps in performance between Big Tech and relatively more attractive valuations in cyclical areas outside of Tech. This could continue if the U.S. economy is headed for a soft landing. That said, some of Tech's key secular drivers, such as artificial intelligence, are in the early innings. In our view, a little "price give back" across Tech, if that's ultimately what happens over the coming weeks, would be healthy, particularly if Mag Seven reports continue to point to positive outlooks for profit growth. Key earnings reports from Microsoft, Apple, Meta Platforms, and Amazon are on deck this week.
Bottom line: Expectations can run ahead of results, but if the results remain positive, at some point, investors may use reduced prices in Big Tech as a means to allocate new dollars to the group. However, as investors saw in the first half, stock selection matters, and over time, the group has become less homogenous in its performance and key drivers. It's also important to note that the S&P 500 typically sees its worst two-month stretch of performance during the year in August and September. However, that's followed by the best three-month stretch of performance during the year in October through December. In our view, investors should recognize that secular growth trends in areas of technology remain important drivers of the overall market yet balance that view with other cyclical opportunities that are attractively valued.
The Week Ahead:
If you thought last week was volatile for stocks, this week's slate of data could ultimately shape how the market trades over the next several weeks. As mentioned above, key Mag Seven earnings reports are on deck throughout the week, representing roughly one-third of the NASDAQ by market-cap weight. A Federal Reserve policy decision on Wednesday and an always important nonfarm payrolls report on Friday should help provide a general sense of the current state of economic/monetary conditions in the U.S. combined with key Big Tech earnings reports/outlooks this week, investors will have a ton of information to digest to help shape where the stock market is headed next.
Important Disclosures
Sources: FactSet and Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
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