Market Rotation Deepens

Investors continued to rotate away from momentum names into Small Caps, Mid-caps and "value" names last week.

More than a third of S&P 500 companies report 2nd quarter earnings this week and so far, reports have been solid. Overall, 78% of S&P companies have beat earnings estimates, which is above the 5-year average of 77%. The Fed meets this week to determine the future course of interest rates. Inflation came in as expected last week with the PCE Index up only 0.1%, which was actually lower on a year-over-year basis. This has provided renewed expectations of an initial rate cut at next month’s Fed meeting.

Second quarter GDP came in at +2.8%, above expectations.

So far, the soft-landing theory seems to have plenty of merit. Meanwhile, the market has been experiencing a reversion to the mean when it comes to over-valued tech names. The first 2% correction in a single day occurred last week. However, we’ve only had 9 down days of greater than 1% this year. In similar years, markets have finished higher by year-end. Expect some volatility this week as markets anticipate a change in the Fed’s language pointing to future rate cuts.

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