The second half of 2024 started off well enough for most global stock markets. That is, until we hit mid-month, and what had been the clear leaders so far this year became the weakest parts of the market. Technology and Communication sectors had been exceptionally strong this year, leaving most other market sectors lagging behind them. But the mid-July shift led to a fairly quick and drastic drop of those leaders.
Small Cap had been just above break-even for the year up until this point, but with the drastic drop in Tech, it saw a similar drastic rise of nearly 10% (FastTrack Data). We’re now seeing the broad sections of the market start to even out after months of being diverged.
However, the primary bond market indices (the Aggregate Bond and the 10 Year Treasury Index) haven’t made much progress. Both are still close to break-even on the year. As I’ve said in the past, for now, bonds are not the best place to park “safe” money or to even diversify. But that could be changing soon.
The Federal Reserve is now expected to lower interest rates in September. At least, that is what the odds-makers are suggesting. The 2-Year yield agrees that is it past time for rates to come down (See Tom McClellan’s work here – 2nd chart on the page).
We are still in a seasonally strong period of the year, Election Year or not. And we’d expect to see strength continue at the very least through the end of August. Of course, there may be some volatility here and there, but for now that is just expected to be noise.
Our Shadowridge Long-Term Trend indicator is still holding onto its positive reading which began in the month of May and now continues into July. Even with the late July market jitters, we still see the market having some strength behind it. For now.
Our Mid-Term Cycle went positive the 2nd of July and saw money flow accelerate more than it had so far in 2024. Even now, we see a strong reading, which suggests money is still flowing into the market indices.
As of Wednesday night (July 24th, 2024), our Shadowridge Dashboard showed Positive to Negative market sectors as 7 to 4. The weak sectors on our list are primarily Technology (no surprise there), Communications, Consumer Discretionary, and Energy. There appears to be the most strength in Financials and Utilities.
All 10 RGB Bond Indices are currently trending positive, above their 50-day Moving Averages, with Economic-Sensitive bond sectors remaining strong against Interest-Rate-Sensitive bond sectors. Junk Bonds, Preferreds, and Bank Loans (Floating Rate) are currently beating out US Treasuries, Corporate, and Inflation Protection bonds on a relative strength basis.
This month’s chart will be a quick look at money flow on our Long-Term Trend Indicator. Very simply, this is charting the number of stocks going up, minus the number of stocks going down, on a daily basis. We use a 55-day moving average (Purple) and a secondary 21-day moving average (light Red). If the calculation (yellow mountain) is above one, or both, of these moving averages, then we’d assess that money is flowing into the market. And when it moves below, money is flowing out. Then we can allocate accordingly.
This is a chart that I show every month on our live webinar (and replayed on our YouTube Channel).
Six-month chart of the NYSE Cumulative average with 55-day and 21-day moving averages (Source: ShadowridgeData.com)
As I mentioned earlier, the Bond Indices (the Aggregate and the 10-year Treasury) remain close to flat Year-to-Date in 2024. But, if the Federal Reserve does cut rates in September, then we could see a rapid rise in these two lagging indices. Bond prices rise with falling rates. So, these two segments could really see some positive movement in the near-ish future, depending on what the Fed decides to do.
Bottom Line: we have rotated out of Technology and reduced our NASDAQ holdings in most of our portfolios. Unlike Tech, however, the S&P500 still looks ok as a core for now. If the market doesn’t reverse course soon, we will start putting up more defenses to protect from further downside. As ever, we remain vigilant to protect when prudent as trends change.
Stay safe out there!
1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.