Looking at the S&P 500 Index, July looks like it was an uneventful month for stocks, with the index gaining a modest 1.1%. However, there was a lot of movement under the surface that influenced returns. Technology stocks, which had been at the forefront of the rally over the past year and a half, fell 3.3% in July. Meanwhile, unloved sectors over the past eighteen months posted solid returns, with Financials and Health Care gaining 6.4% and 2.7%, respectively. Value swung back into favor this month as well with the Russell 1000 Value Index gaining 5.1%. Meanwhile, growth sold off in July with the Russell 1000 Growth Index falling 1.7%. The biggest winner in July was small cap stocks as the Russell 2000 Index surged 10.3%. Finally, international stocks modestly outperformed their US counterparts with the MSCI ACWI Ex USA gaining 2.2%.

Setting off this rotation in performance was the increasing likelihood of interest rate cuts in the back half of the year. The Consumer Price Index (CPI) came in soft in June, with CPI falling 0.1%. Core CPI, which strips out food and energy prices, rose a benign 0.1%. The modest June numbers pushed the yearly inflation rate down to 3.0% for the headline figure and 3.3% for the core figure. After this print, the markets began to price in rate cuts for September, November, and December. Currently, the market is anticipating three cuts over the next five months. The promise of lower rates paired with elevated valuations in technology and artificial intelligence names sparked the ongoing rally in small caps and value stocks and pushed fixed income indexes higher.

One of the themes we mentioned earlier this year was the possibility of a broadening out in performance. While it took a little over half of the year, it looks like this broadening out may finally be starting to occur in US markets.

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IMPORTANT DISCLOSURES

The views, opinions and content presented are for informational purposes only. The charts and/or graphs contained herein are for educational purposes only and should not be used to predict security prices or market levels. The information presented in this piece is the opinion of Aurdan Capital Management and does not reflect the view of any other person or entity.  The information provided is believed to be from reliable sources, but we cannot guarantee the accuracy or completeness of the information, no liability is accepted for any inaccuracies, and no assurances can be made with respect to the results obtained for their use.  The information contained herein may be subject to change at any time without notice. Past performance is not indicative of future results.