Piggy bank in a volatile position J Studios
Introduction
Welcome to the SA’s The Macro Brief! This official SA Profile will highlight our analysts' latest economic and market analysis to help investors gauge the ever-volatile financial landscape through various recurring series.
The economy is the foundation of financial markets, influencing everything from corporate earnings and consumer spending to central bank policy and inflation. Understanding economic trends, policy decisions, and sector activity can be critical when assessing market opportunities and making informed investment decisions.
If this is your first time seeing this article series, please take a look at our inaugural issue for a more in-depth look at what you can expect.
Without further ado…
July’s Trending Themes
Fear Is Growing On Wall Street
S&P 500: Quantifying The Prospects For A Lost Decade | Wright's Research
“According to our valuation models, which we will lay out in this article, the warning signs are flashing bright red in terms of historical valuation. We believe that equities are currently as expensive as they've been to a similar extent in the years 1929, 1937, 1968, and 2000 in terms of inflation-adjusted returns.”
The Final Stages Of A Mega Cap Blowoff And Serious Equity Market Risks | Tyson Halsey, CFA
“Like past historic bubbles, the current market is manifesting a parabolic ascent, historically high valuations, and an “irrational exuberance” based this time on the extraordinary growth expectations for “AI” (artificial intelligence). The psychology of fear and greed are repeated throughout history.”
The Overextended Stock Market Has Likely Reached Its Breaking Point | Mott Capital Management
“The S&P 500 has hit multiple extremes that scream danger. This index is technically overextended and fundamentally overvalued but close to a breaking point.”
Baby Boomers Better Get Out Of The Stock Market Now | Ronald Surz
“Baby boomers need to be concerned about the worst cases because the rest of their lives could be ruined by the next crash, and with $70 trillion at risk the stakes are high for them and their heirs.”
Is This Our 1929 Moment Or The New Normal? (Technical Analysis) | Justin Ward
“As the US indexes see some selling pressure after an extraordinary period of bonanza for the bulls, in this article we will look into any printed evidence that this selling is more bearishly sinister.”
Recession Worries Are Surging… Again
Is The U.S. Economy Flirting With Recession? | James Picerno
“Judging by the analysis in some circles, a recession is a foregone conclusion. More cautious types argue that the expansion continues, but just barely, and that a formal recession will likely start at some point in the next several months.”
There Are Many Signs A Recession Is Coming | Hawkinvest
“I see too many warning signs that the Fed's aggressive "catch-up" rate hikes and its apparent belief in a higher for longer interest rate policy, is already creating issues that will not easily be reversed with a simple rate cut later this year.”
A Consumer Led Recession Is Becoming Increasing Likely | Bret Jensen
“It is also becoming quite apparent that the consumer is under increasing duress. Given consumer spending makes up nearly 70% of economic activity, it is difficult to see how we avoid at least a shallow recession over coming quarters, even if the Federal Reserve finally cut rates as expected at its September FOMC meeting.”
Market Rotation Gains Momentum
The Rotation Has Started: More Downside May Be Ahead | Victor Dergunov
“The first words that come to mind are pullback and rotation. The mega-cap tech segment has led stocks higher for a long time, and recently, technical conditions became overheated. We can also argue that many valuations in the mega-cap tech space have become "stretched," at least in the near term.”
Tech Is Down - So Where Are Investors Rotating Towards | Dividend Seeker
“Despite Tech's recent drop, many sectors/strategies have actually seen gains of late, and I think those are worth exploring if the current re-positioning continues.”
S&P 500 Slips As Market Rotation Gains Steam | Ironman at Political Calculations
“The market's decline coincided with the conveyance effect gaining steam, the mechanics of which are seen as a rotation from the megacap tech stocks that came to dominate the S&P 500 in the first half of 2024 into other component stocks of the index.”
Sector Rotation From AI To Value: The Tip Of The Iceberg | Dane Bowler
“In July, there was a clear shift in market psychology. A sector rotation began, in which capital flowed away from the previous momentum plays into value and small cap. For seemingly the first time in years, Nasdaq (QQQ) is the laggard while the Russell 2000 small cap ETF (IWM) is outperforming.”
Can Rotation Into Small-Caps Work Absolutely Or Just Relatively? | Non-Correlating Stock Ideas
“Long story short, the market delivered the signals I was fearful of, and I subsequently sold out of all of my domestic equity-related ETF exposure in every account I manage except for one.”
2024 Election Comes Into Focus
Trump Rate Cuts? A Handful Of Stocks With Possible Convexity | Brett Ashcroft Green
“While history will tell us that Democrat or Republican presidencies don't have much differential when it comes to market trajectories, the policy as it pertains to taxes and rate cuts can have effects on certain segments of the market.”
Would A Trump Presidency Cause Recession? | Sandeep G. Rao
“While leading economists assert that President Trump's promises pose a significant economic risk, the path to implementation is paved with compromise.”
Easing Into Elections | Jeffrey Rosenberg
“Elections have been anything but easy for investors - from the repricing of fiscal policy expectations following the French, Mexican, and Indian elections to the bear steepening in US treasuries. These dynamics could impact the pricing of government debt and contribute to rising term premia, potentially undermining the attractiveness of longer maturity bonds.”
A Change In Leadership? | Neuberger Berman
“As Biden withdraws, we are seeing a historic rotation into small-cap stocks and a growing opinion-polling lead for Donald Trump - are the two things related?”
The Next President Will Likely Inherit A Major Recession And Stock Bear Market | Jon Wolfenbarger
“In this article, I will present evidence that shows it is highly likely the next US President will inherit a major recession and stock bear market. This is likely to dominate the early years of their administration, which will lower his or her popularity and make it difficult to implement their agenda.”
Bonus: Other Noteworthy Articles From July
The U.S. Debt Crisis: Explained | Eric Basmajian
“So, in this article, we’ll not only break apart the debt situation in the public sector, but we’ll also analyze the private sector debt burden. At the end of this article, we’ll discuss the consequences of such a crushing public and private debt burden.”
You're Soaking In It | John Hussman
“On Tuesday, July 16, our most reliable gauge of U.S. stock market valuations hit the steepest extreme in U.S. financial history.”
Has An Age-Old Relationship Changed? | Steven Saville
“Trends in the T-Bond yield no longer reflect trends in the risk-free interest rate due to an expanding risk premium in the T-Bond yield associated with an increasingly profligate government.”
The Coming Rate Insensitivity | Lyn Alden Schwartzer
"The first topic for this issue focuses on the observation that the U.S. economy will likely be de-sensitized to interest rate cuts in the next business cycle, similar to how it was de-sensitized to interest rate hikes during this prior cycle."
Conclusion
We hope our analysts' insights serve as a valuable financial compass for investors seeking to make informed investment decisions.
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