To The Moon

Summary of the Last Session

Market movements were led by significant fluctuations in major indexes. The Dow Jones Industrial Average saw a modest rise of 0.1%, while the $S&P 500(.SPX)$ increased by 0.3%. The Nasdaq Composite stood out with a robust 0.8% gain, hitting yet another record close. In contrast, the Invesco S&P 500 Equal Weight ETF fell by 0.8%, indicating a lack of breadth in market gains. A total of 382 S&P 500 stocks closed lower, with only four sectors rising and one remaining flat.

$RSP

The bond market saw rising yields after a slight decline in a key U.S. manufacturing indicator for June, which fell below expectations. This increase in yields adversely affected rate-sensitive sectors such as materials and real estate, which declined by 1.6% and 1%, respectively.

Tech giants, collectively known as the Magnificent Seven, played a crucial role in the market's performance. $Tesla Motors(TSLA)$ led the pack with a 6.1% surge, followed by $Apple(AAPL)$ , $Microsoft(MSFT)$ , and Amazon, each rising more than 2%. $NVIDIA Corp(NVDA)$ , Alphabet, and Meta Platforms also posted gains, albeit more modest ones. Despite these gains, the narrow market leadership raises concerns about the sustainability of the current bull market.

7MAG

Key Events of the Last Session

1. U.S. Manufacturing Data: - The recent manufacturing report showed a slight decline in June, coming in below expectations. This contributed to the rise in bond yields, affecting sectors sensitive to interest rates.

2. Atlanta Fed’s GDPNow Model: - The model's latest estimate for Q2 GDP growth dropped to 1.7%, indicating a slowdown in economic activity. This lower growth forecast increases the likelihood of the Federal Reserve cutting interest rates.

3. U.S. Corporate Bond Spreads: - Corporate bond spreads had reached "peak confidence" a couple of months ago but have since been widening due to concerns about an economic slowdown.

Market scenario

The market's performance has been characterized by a dichotomy between the gains in major indexes and the underlying weakness in market breadth. The S&P 500 and Nasdaq Composite have reached new highs, primarily driven by a few large-cap tech stocks. This narrow leadership raises concerns about the sustainability of the current bull market, as a more broadly-based rally is typically seen as a healthier and more sustainable trend.

Bond yields have been rising, reflecting concerns about economic growth and inflation. The decline in manufacturing activity and the lower GDP growth estimate from the Atlanta Fed highlight potential headwinds for the economy. These factors suggest that the Federal Reserve might consider cutting interest rates in the near future to support economic growth.

The European Central Bank (ECB) President Christine Lagarde recently remarked that there isn't yet sufficient evidence to declare that inflation threats have subsided, reinforcing expectations that ECB officials might pause interest rate cuts this month. Despite the strong job market in the eurozone, the ECB is taking a cautious approach, waiting for more data before making further decisions. Governing Council member Pierre Wunsch expressed the need for convincing evidence of inflation returning to the 2% target before supporting more than two interest rate cuts this year.

The Russell 2000 lost significant contributors, SMCI and MSTR, due to annual rebalancing. These companies had significantly boosted the index's performance in the first half of the year.

WTI Crude Oil futures rose by 2.25%, while Natural Gas prices fell by nearly 5%. Bitcoin futures saw a substantial increase of 5.75%.

• Upcoming Economic Reports

ADP Jobs Report: - Scheduled for release on Wednesday, this report will provide insight into private sector employment trends.

June Employment Situation Report: - The market is eagerly awaiting Friday's employment report, which will offer a comprehensive view of job growth and unemployment rates.

Jobs

Conclusion

The recent market session highlights the dichotomy between robust gains in major indexes and underlying weaknesses in market breadth. The dominance of a few large-cap tech stocks raises concerns about the sustainability of the current rally. Economic data points to potential headwinds, with slowing growth and rising bond yields prompting speculation about future interest rate cuts by central banks

This analysis is for informational purposes only and does not constitute financial advice. Investing in financial markets involves risks, including the potential loss of principal.

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