We’re officially halfway through the year today. It’s been a wild ride in the first six months, and despite all the noise (which was loud), the markets are actually up, broadly speaking. Would have been hard to imagine in the wake of “Liberation Day.”
You know our favorite index is the Equal-Weight S&P 500 index. It takes out all the bias of the MAG7 stocks and equally weights each of the 500 companies.
The charts look similar, but there is a slight outperformance of the equal weight version (ticker: RSP) to the MAG7 (ticker: MAGS). Take a look..
Compared to the RSP equal weight index.
The outperformance is substantial in relative terms but not so noticeable in absolute terms. Through Friday, these ETFs were up 3.23% vs. 2.13%, showing that the broader market is slightly outperforming the big tech names that have dominated returns in recent memory. A difference of 1.1% for a half year is good, but both have been underwhelming for the first half of the year.
Meanwhile, bonds have fared better of late, though, like equities, still somewhat flat. As measured by the AGG, bond are up 1.96% for the year.
It has paid to be conservative this year, as the model has performed in line with the broader markets, but with 1/2 to 1/3 the volatility. With our model still negative (conservative), but getting closer to flipping, we will see if the market is in the middle of a new breakout or if the recent recovery was a so-called “dead cat bounce.”
We discussed a couple of the FED governors being more ready to cut rates and we are starting to see the market price some of those in. Sorry for the small print, but over the last month there has been a roughly 20% increase in the chance of a 25-basis point cut in the FED funds rate by September.
Not only that, but the amount of money in the system has been going up at a good clip this year as the FED has stealthily been expanding the money supply.
A last couple points to consider as we close as send you off to your holiday shortened week. Soft data (those based on surveys) have been weak for the last year plus, while hard data (those based on actual numbers) have held up pretty well. Here’s one of the hard data points that have struggled for 19 straight months. Remember, under 50 means contraction in the economy (at least in this region). Here is the Chicago PMI, with June just released today at 40.4, three full points less than expected.
Finally, we should see job openings numbers tomorrow as well as payroll numbers for June later this week. July 4th is this Friday, so make sure you keep all your digits safe! As you might expect, the markets and our offices will be closed for the holiday.
And now I’m going to go take a nap after my weekend in Venice at the very prestigious Bezos wedding. Of course, my good friend Charlize Theron, who lit up Venice in The Italian Job, didn’t think much of not getting invited.
Ok, just for the record, I didn’t get invited (must have gotten lost in the mail) and I really don’t care! Good luck to the newlyweds.
As always, please let us know if you have any questions about this or any other topic. We will be happy to have a conversation.