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What Caused This Rotation From Growth to Value (And How Long Can It Last?)

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What Caused This Rotation From Growth to Value: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • What Caused This Rotation From Growth to Value?
  • How Long Can It Last?

Futures are slightly higher as tech stocks bounce modestly following better than expected earnings overnight.

Taiwan Semiconductor (TSM) posted solid earnings and the stock is modestly higher pre-market and that’s helping the tech sector to bounce and support futures.

Economically there were no important reports overnight.

Today is a busy day of economic data and central bank speak.  First, on the data front, the most important report is the July Philly Fed Survey (E: 3.0) followed closely by Jobless Claims (E: 230k).  Economic data so far this week has been Goldilocks and that’s helped stocks and markets will welcome more Goldilocks reports today, while “Too Cold” data will increase growth worries.

Looking at central banks, there’s an ECB Rate Decision later this morning but they aren’t cutting rates (the only question is how forcefully they telegraph a September cut and the more forcefully, the better for stocks).  Looking at the Fed, we have three speakers today, Logan (1:45 p.m. ET), Daly (6:05 p.m. ET) and Bowman (7:30 p.m. ET) and if they echo recent sentiment that it’s “almost time” to cut rates that should also help support stocks.

Finally, on the earnings front, we get some notable reports today including TSM ($1.37), NFLX ($4.70) and PPG ($2.48).

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The Yield Curve May Un-Invert Soon. Why That’s Not Good (Historically)

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The Yield Curve May Un-Invert Soon. Why That’s Not Good (Historically): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Yield Curve May Un-Invert Soon. Why That’s Not Good (Historically)
  • How the Post CPI “Rest of the Market” Rally Is Accelerating

Futures are moderately lower thanks to significant weakness in tech stocks.

Semi-conductor chip stocks are lower this morning on a trifecta of negative news including soft ASML guidance, reports of tighter chip restrictions with China and bellicose rhetoric from Trump on Taiwan in a recent interview.

Focus will remain on economic data today and the most important report is Industrial Production (E: 0.3%) while we also get Housing Starts (1.305M).  As Tuesday showed, markets still want Goldilocks economic reports, meaning they aren’t too strong but don’t point to economic weakness, either.  We also have two Fed speakers, Barkin (9:00 a.m. ET) and Waller (9:35 a.m. ET), but unless one of them floats the possibility of a third rate cut in 2024, they shouldn’t move markets.

Finally, earnings season continues to roll on and some notable reports today include: ASML ($3.87), JNJ ($2.82), and UAL ($3.97).

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Economic growth must remain resilient and we cannot have a growth scare

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Economic growth must remain resilient and we cannot have a growth scare: Tom Essaye Quoted in MarketWatch

Stock market’s long-awaited Great Rotation needs to overcome this nagging worry

For the rotation to be sustained beyond a few weeks, “economic growth must remain resilient and we cannot have a growth scare,” said Tom Essaye, founder of Sevens Report Research, in a Friday note. “If we do get a growth scare, then cyclical sectors like energy, industrials, materials and financials will likely not do well.”

Investors can act accordingly.

Those that think growth will slow should overweight super-cap tech TDIV and defensive sectors like utilities XLU, healthcare XLV and consumer staples XLP, Essaye wrote. Those that think growth will be resilient should overweight value stocks VTV and the equal-weight S&P 500 RSP.

For his part, Essaye said he’s more concerned about growth than the
consensus, so he won’t be chasing value and cyclical stocks, instead sticking to his preference for defensive sectors and longer term Treasurys that will benefit from a sustained fall in yields alongside moderating growth.

Also, click here to view the full MarketWatch article published on July 13th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

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The performance gap between tech and the rest of the market

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The performance gap between tech and the rest of the market: Tom Essaye Quoted in Forbes

Why A Magnificent 7 Breather Could Be A Good Thing For The Stock Market

“The performance gap between tech and the rest of the market is so wide that it’s reasonable to expect continued closing of that gap as markets more fully embrace the idea of the start of a rate cutting cycle,” summarized Sevens Report founder Tom Essaye, noting in the “near term” non-tech sectors may mount a catchup rally. Essaye is referring to Thursday’s strong inflation data which bolstered calls for the Federal Reserve to soon lower interest rates, which broadly help most equities but tend to favor certain rate-sensitive sectors like real estate.

Also, click here to view the full Forbes article published on July 12th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Lastly, If you want research that comes with no long-term commitment, yet provides independent, value-added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

I think this will cause a bit of a correction

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I think this will cause a bit of a correction: Sevens Report Editor, Tom Essaye, Quoted in Barron’s

What to Buy if the Stock Market Rotation Is Real

“It was almost sort of getting feverish just how relentlessly these stocks were rising,” Sevens Report Research’s Tom Essaye tells Barron’s. “I think this will cause a bit of a correction, and a bit of a widening. How long it lasts depends on growth.”

Essaye says traders are looking at the prospect of lower rates and noting small caps, utilities, and real estate investment trusts are both cheap and could benefit from lower rates.

Also, click here to view the full Barron’s article published on July 11th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

It’ll be Very Hard for This Market to RallyIf you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

The Important Question in a Noisy Market

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The Important Question in a Noisy Market: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Important Question in a Noisy Market

Futures are slightly higher mostly on momentum as markets again ignore disappointing retailer earnings.

Hugo Boss became the latest retailer to post poor results and cut guidance as anecdotal warnings on consumer spending continue to grow.

The only notable economic number overnight was the German ZEW Sentiment Index and it met expectations.

Today focus will stay on economic data and earnings. The key economic report today (and of the week) is Retail Sales (E: -0.3%) and if that number is weaker than expected, look for concerns about a slowdown to grow (although that likely won’t hit stocks immediately as bad data is still good for stocks).  We also get the Housing Market Index (E: 43) and one Fed speaker, Kugler (2:45 p.m. ET), but they shouldn’t move markets.

On the earnings front the season continues to heat up and reports we’ll be watching today include:  BAC ($0.79), UNH ($6.65) and MS ($1.65).

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Market Impact of the Assassination Attempt on Former President Trump

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Market Impact of the Assassination Attempt on Former President Trump: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Market Impact of the Assassination Attempt on Former President Trump
  • Acknowledging There’s a Downside to Current Market Events, Too
  • Weekly Market Preview:  Do Growth and Earnings Hold Up?
  • Weekly Economic Cheat Sheet:  An Important Check on the Consumer This Week

Futures are moderately higher as markets further price in an expected Trump win and Republican sweep following the assignation attempt on the former President.

Former President Trump survived an assignation attempt over the weekend and while expectations of a Trump win in November are boosting futures this morning, the event is unlikely to sustainably impact markets.

Today focus will be on economic data and Fed speak as Powell speaks at noon while we also get the first look at July economic data via the Empire Manufacturing PMI (-5.50).  If Powell is dovish and the data is solid, expect this early rally to continue.

Turning to earnings, this will be a busy week of results but it starts relatively slowly and the only two notable reports today are GS ($8.52) and BLK ($9.96).

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Was Yesterday’s CPI Another Bullish Catalyst?

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Was Yesterday’s CPI Another Bullish Catalyst? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Was Yesterday’s CPI Another Bullish Catalyst?
  • Can the Rotation Out of Tech and Into the “Rest” of the Market Continue?

Futures are flat following a quiet night of news as investors digested the CPI report and rotation out of tech.

Politically, Biden’s press conference performance is pushing back, for now, on moves to replace him as candidate.

Economically, there was no notable data overnight.

Today focus will stay on inflation as we get PPI (E: 0.1% m/m, 2.3% y/y) and the 1-Yr Inflation Expectations (E: 3.0%) and 5-Yr. Inflation Expectations (E:  3.0%) in the University of Michigan Consumer Sentiment Survey.  As we saw yesterday with the CPI report, the better the inflation data, the stronger the tailwind on stocks (especially the “rest” of the market, meaning away from tech).

Earnings season also unofficially begins today with big bank earnings and results we’re watching include:  JPM ($4.19), WFC ($1.27), C ($1.40), BK ($1.43), FAST ($0.51).

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July MMT Chart and Powell Testimony Takeaways

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July MMT Chart and Powell Testimony Takeaways: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Powell Testimony Takeaways – Underappreciated Growth Risks
  • July MMT Chart – All Scenario Targets Hit New Highs

Futures are higher again this morning amid firming Fed rate cut bets after Powell’s first day of semiannual testimony on Capitol Hill while inflation data was mixed overnight.

Economically, inflation data in Asia was mixed as Chinese CPI fell to 0.2% vs. (E) 0.4% y/y but Japanese PPI rose from an upwardly revised 2.6% in May to 2.9% in June.

There are no notable economic reports in the U.S. today which will leave markets primarily focused on Fed Chair Powell’s second day of Congressional testimony, this time before the House Financial Services Committee.

There are two additional Fed speakers this afternoon, Goolsbee and Bowman at 2:30 p.m. ET while Cook speaks later this evening, well after the close (7:30 p.m. ET).

Finally, there is a 10-Yr Treasury Note auction at 1:00 p.m. ET. Yesterday’s 3-Yr Note auction saw solid demand, however there is some uncertainty about demand for longer duration Treasuries right now, and weak results at today’s auction could send those yields higher which has the potential to trigger some profit taking in equities.

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Market Multiple Table: An Important Change

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Market Multiple Table: An Important Change: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Market Multiple Table: An Important Change

Stock futures are trading higher this morning with tech stocks continuing to outperform as traders look ahead to Fed Chair Powell’s Congressional testimony today.

Economically, the NFIB Small Business Optimism Index rose 1 point to 91.5 vs. (E) 90.3 in June.

There are no additional economic reports today which will leave trader focus on Fed Chair Powell’s semi-annual testimony before Congress beginning at 10:00 a.m. ET. There are two additional Fed speakers as well today: Barr (9:15 a.m. ET) and Bowman (1:30 p.m. ET).

The only other potential catalyst on the calendar is a 3-Yr Treasury Note auction at 1:00 p.m. ET. Weak demand and subsequently rising yields after the auction could weigh on stocks as money flows have been very dovish in recent weeks.

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