On Monday, the Dow Jones Industrial Average (^DJI) closed at an all-time high while the S&P 500 (^GSPC) closed just below its all-time high. Yahoo Finance reporter Josh Shafer joins Asking for a Trend to discuss the trading day’s accomplishments.
First, he points to the market’s continued expansion as a major trend: Energy (XLE), Financials (XLF), and Industrials (XLI) have all led the market higher, while Technology (XLP) has slightly underperformed the S&P 500 over the past five days.
Next, the Russell 2000 (^RUT) hit its highest price since 2022. As more economic data suggests inflation is subsiding, confidence in a possible September rate cut is growing, boosting small caps.
Finally, the economy is showing signs of easing overall. The June retail sales report is due out on Tuesday, and Wall Street expects sales to decline by about 0.2%. Schaefer explains that if the figure is in line with expectations, it will provide further evidence that the economy is responding to rising interest rates. This could give the Federal Reserve more confidence in cutting interest rates.
For more expert insights and the latest market trends, click here to watch the full episode of “Ask the Trends.”
This post was written by Melanie Leal
Video Transcript
The Dow Jones Industrial Average closed at a new record high, while the S&P 500 finished just below its all-time high in the trading day’s focal points.
Now let’s turn to Josh Shaffer from Yahoo Finance. Josh.
Hey Josh.
Well, we’ve been following the broadening stock market rally over the past few days, and we saw some more signs of that today, especially with the Russell 2000 and sector moves.
So, I would like to start with today’s sectoral activities.
As you can see, energy, financials, and industrials are particularly leading the way, with tech stocks perhaps lagging the S&P 500 slightly behind.
There are also communication services, but they are not really the front end.
And that has been the trend for the last five days since the inflation report came in better than expected and markets began pricing in a September rate cut.
This is the trend.
The outlook for an upside is growing for real estate and interest rate sensitive sectors, which are leading the S&P 500 sectors.
Of course, that’s true on an annual basis.
That wasn’t the story, was it?
Up until now it’s all been mega-cap tech, and then others have been looking at real estate.
I’ve barely made it through the new year.
So, we’re seeing this shift towards a rotation.
Of course, this isn’t the first time we’ve heard of a growing stock market rally.
We spoke a little bit in February or March.
We talked about it last December, but it didn’t really stick.
So the key question that I’ve been discussing with strategists today is, will it survive, and what will it take to survive?
I think we’re in that situation right now.
Josh, when you talk to these people, what are the indicators or signals that they look for to know if the rotation is actually continuing?
A big point that Bank of America’s Ng Kwon highlighted to me was the Magnetic Seven’s earnings forecasts compared to the S&P 500.
So mag 7 is purple, S and P are 5.
The rest of the S and P 504 93 is white and blue.
What’s noteworthy is that we’re seeing purples rising here and blues rising, something we haven’t seen in a long time.
right.
Now, this quarter, 493 companies are expected to emerge from their revenue slump and start posting positive revenue growth.
And the big question is: will they do this?
Because, remember, this is just an expectation.
This is exactly what Wall Street is hoping for.
So, do we understand this?
And whether that will continue for the rest of the year is one of the key fundamental questions.
And of course, there’s also the Fed cutting interest rates.
And will the savings reflected in the price come to fruition?
Are those coming?
And if they do come, how many will they come?
Is it because the economy is doing well or badly?
This is the beginning of the question.
And that relates to our second topic.
A large company.
Yes, the Russell 2000 hit a two-year high since 2022.
Here we show the chart.
But the reality is that the Russell Index is a good gauge of public sentiment toward rate cuts on a day when people are pricing in further cuts and possibly even Fed easing.
You can see that Russell is pretty good.
Now, if we look at IWM, which tracks the Russell 2000, we can see that it has risen about 7% over the past five days.
Yep, 7% in the last five days.
So, compared to the S&P 500, this is really up.
Do you think it’s a congregation in a small catch?
Josh: Is that just based on the expectation of interest rate cuts?
Let’s keep it simple.
that’s right.
What’s interesting is, I think when you look back over the year, you’ll see that this has happened before and then sometimes you’ll have a dip.
right.
This gathering is understandable.
This is when people were more optimistic, but then optimistic feelings drop.
An interesting thing that strategists shared with me today was Callie Cox from R Holt’s Wealth Management.
She said she’ll think about it after the cut is done.
So if there is a rate cut in September, small caps typically rally after the cut.
So it’s interesting to see this happening now, but some strategists don’t necessarily think it will last.
They believe the real increase will likely come after those cuts are made.
And unless there’s a surprise in July, it’s not going to come anytime soon, Josh.
Okay.
The third Shafer lesson, the third lesson, ties all of this together in a broader way: tomorrow there’s retail sales, and what I learned talking to different people today was things like retail sales.
I hope that the data continues to come in just as it has before, not too hot or too cold.
I look forward to tomorrow’s expectations.
Retail sales, excluding autos and gasoline, are expected to rise slightly but fall by about 0.2%, which is good news for the market.
You don’t want a number that’s too high so that people start worrying about inflation, but you also don’t want a number that’s too low.
People are worried that the economic data will be weak.
And if the economic data is weak and that’s the reason for the reduction in all the expansionary measures that we talked about for five minutes, then that whole trend goes away because the economy needs to be strong.
So it’s going to be interesting.
There will be some big economic data and other reports for the market at 8:30 so keep an eye on that.
That’s all for this week.
Really, Josh?
Okay.
Until Netflix makes money.
right.
Thank you, Josh.
appreciate.
