July Recap (Rotation Out of Big Tech and Market Broadening)

Equities experienced turbulence but still headed toward a positive month.

July saw a notable rotation out of “Big Tech” and into other pockets of the market. Only one of the eleven sectors were down for July, Technology, which fell 3.3% for the month. As noted below, small and large value stocks performed better than their growth peers.

Equities experienced some turbulence in the second half of July, but most indices finished higher thanks to a solid first half of the month. The Dow Jones Industrial Average rose 4.5% in July, the S&P 500 advanced 1.2%, and the NASDAQ slipped 0.7%. July was stellar for small-cap value names, as the small-cap Russell 2000 Value index surged 12.5%.

Some believe this is the market’s way of expressing the top of the market, particularly the Magnificent Seven (Apple, Nvidia, Amazon, Alphabet, Meta, Tesla, and Microsoft), which have had their valuations stretched. Also, on the back of weak earnings at the end of the month, it has been easy for the market to be worried about their robust growth story continuing into the end of 2024.

If we recall, we discussed the benefits of looking at names outside the largest in the S&P 500 in May. Mostly predicated on the idea that valuations relative to growth looked attractive elsewhere in the market. As we round out the year, we can expect to see these same levels of broadening out, assuming the economy continues to hum along.

Looking Ahead: Where is the Economy headed?

This question is one of the most debated topics in public finance and is often one of the most challenging/improbable to predict. At Correct Capital Wealth Management, we do not believe we can make such a bet or accurately predict what will occur in the economy. Instead, we focus on investment decisions that allow our clients to weather the storm while ultimately helping them reach their long-term goals.

If we recall back to 2022, everyone was screaming about a recession and economic collapse due to the Fed's hiking interest rates. If you had acted on that advice and pulled your money out of the market, you would have completely missed the rally in 2023. Where most of the losses in 2022 were made back, and more.

Throughout history and into the future, there have been and always will be reasons to worry about the economy or the markets. Still, one tried and true solution to have better long-term outcomes is to drown out the noise and focus on the long-term outcomes. As you can see below, these are just a few good examples of “uncertainties” that we have experienced over the last 100 years, and ultimately the market continued to add value.

With rising unemployment and fears that the economy is headed for a hard landing/slowdown, the market needs to reset expectations. A few things we continue to monitor here at Correct Capital include unemployment, economic activity, consumer sentiment, inflation, and, ultimately, the risk/reward profiles of different investments. We are not in the game of trying to time the economic cycle or the markets in general. Instead, we tend to lean towards a bias of high-quality, durable investments that can withstand slowdowns, allowing our clients to maintain the course.

In Conclusion…

We continue to keep an eye on the future. Over the past few months, we have highlighted some of the uncertainties in the market, including inflation, the Federal Reserve interest rate expectations, slowing economic growth, and a few others. Ultimately, we maintain an optimistic outlook for the markets, and as always, we continue to monitor new events as they arise. Investing is as much an art as a science, and we try to help you balance those thoughts while navigating an ever-changing environment. We will constantly reiterate that having a plan, sticking with your plan, and trying to eliminate as much emotion as possible will always be the key to becoming a better investor.