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Summary
Market Turmoil as Election Weighs In mid-July, the stock market, seemingly in solid shape for the year to date, experienced its worst week since April 2024. The selloff followed the failed assassination attempt on former President Trump, yet the two events seem oddly uncoupled. As the S&P 500 and Nasdaq pitched lower, most investors reiterated their belief that stocks had been overdue for a correction and that the selling was healthy rather than triggered by exogenous events. The election experienced an even bigger shift with President Biden’s decision to exit the race rather than run for a second term. This decision was certainly not a shock and, as the president’s poll numbers had deteriorated. So far, investors have greeted two significant events in the election with a muted response, as the focus remains mainly on the Fed’s forthcoming meetings. The Market in July The S&P 500 had been up 18.8% for the year at its closing peak on 7/16/24. That was two full trading days (Monday and Tuesday) after the assassination attempt on the former president on Saturday 7/13/24 — further contributing to the sense that the subsequent selling in stocks was unrelated to the events of that day. As of the market close on 7/19/24, the S&P 500 was up 15.4% year to date on a capital-appreciation basis and 16.4% on a total-return basis (with dividends). Before 7/13/24, the market already had undergone a shift in tone. Investors had started rotating away from the so-called ‘Magnificent Seven’ stocks, first remaining within other Information Technology sector niches and stocks and then gradually broadening out to other areas while taking tech profits. As of early in July, the Russell 2000 was little changed for the year. Between July 9 and July 16, the small-cap index exploded higher by about 11%. On the blue-chip front, the DJIA outperformed the broader S&P 500 during the mid-July selloff week, edging 0.2% higher while the S&P 500 was down 2.3%. And for the previous month, the Dow’s 2.9% gain eclipsed the 0.7% advance for the S&P 500. Also on a total-return basis, the Nasdaq has maintained its advantage over blue chips, with an 18.6% total gain in the year to date. But the Nasdaq’s margin over the broad market is uncommonly narrow in a year of double-digit gains and growth leadership. In 2023, for example, the Nasdaq’s 43.4% capital gain beat the S&P 500’s 24.2% gain by almost 20 points. And in 2020, the Nasdaq’s 43.6% gain more than doubled the S&P 500’s 16.3% advance. Also as of 7/16/24, the DJIA was up 8.0% on a total-return basis. The Dow was up 1.1% year to date as recently as the final day of May, and much of its gain in 2024 has come in the month of July. Growth stocks continue to beat value stocks, but the difference between the Large Cap Wilshire Growth and Value indices has tightened from a gulf to a gap. At the sector level, Information Technology (up 27.0% at 7/16/24) and Communication Services (up 23.5%) have maintained their leadership over the broad market. In an encouraging sign of improving breadth, five other sectors — Financial, Utilities, Energy, Consumer Staples, and Industrials — are up 10%-15%. And Healthcare is right behind, with a 9.4% gain. Even Real Estate, the lone negative sector through the first half of 2024, has pivoted to a 3% year-to-date gain. According to Argus’ Chartered Market Technician Mark Arbeter, the major indices worked off extreme overbought conditions in the selloff week. But that came at the cost of breaking uptrends in 14-day relative strength and daily moving-average convergence-divergence. The S&P 500 during the selloff week broke below its 21-day exponential moving average for the first time since April 2024. Despite the pullback, the market’s uptrend off the lows from early May remains intact. The high-beta Nasdaq 100 remains a bit more fragile, having broken below its May lows. Many Nasdaq 100 component stocks are at or below 50-day trendlines. If many of these issues break decisively below support, rotation away from the year’s leading sectors could persist for some time. A President Exits the Campaign Following the announcement that a current president would not seek reelection, the S&P 500 surged by 2.1% and the index finished the year up over 15%. But we not talking about President Biden. On March 31, 1968, President Lyndon B. Johnson stunned the nation when he announced he would not seek, nor would he accept, his party’s nomination to be president for a second full term. He had come to office upon the assassination of President John Kennedy in November 1963, and then defeated Republican Senator Barry Goldwater a year later in the November 1964 election. Over half a century later, the reason President Johnson chose not to run remains a topic for debate. Officially, President Johnson indicated he could not conduct the war in Vietnam and actively campaign at the same time. Political pundits at the time pointed to Johnson’s deep unpopularity as hundreds of U.S. soldiers were dying weekly in Vietnam. Many believed Johnson would lose to the Republican candidate Richard Nixon or to one of the anti-war candidates, such as Eugene McCarthy or Robert Kennedy, from within his own party. Following Robert Kennedy’s assassination and a Chicago convention marked by riots and turmoil, Hubert Humphrey became the Democratic candidate despite not having won a single primary (he did win some state caucuses). Turning back to current events, should Vice President Kamala Harris become the nominee, as seems probable, she most likely will continue to promote the Democratic Party’s principles. That should, for the most part, allow the growing number of undecided citizens the opportunity to cast their vote in a fair fight that is based on more-typical agenda considerations. Shifting Perceptions of the Fed Timeline As we prepared this publication, the Democratic Party was seeking to unite behind a new candidate; President Trump continued to campaign; and investors mainly have sidelined the political turbulence. The focus for investors, as it has been all year, remains the timeline for the Fed’s widely anticipated first interest-rate cut in four years. For the July 30-31 FOM
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