Equities had a decent month overall, despite losing ground towards the end of the month. July was a also month of two halves, with the first half seeing the S&P 500 hit a succession of record highs. Bonds also rallied as speculation mounted that the Fed would cut rates in September, particularly after the US CPI report came out. But risky assets began to turn halfway through, and the Magnificent 7 saw significant losses that left the index down over -10% from peak-to-trough. Peaking growth and weaker CPI in the US, along with mixed Q2 earnings, triggered aggressive rotation and change in leadership. Equity performance broadened out, with c.65% stocks outperforming the MSCI World index. But the rotation adversely impacted concentrated Big Tech space, and dragged parts of the US market lower. Meanwhile, bonds rallied in both the US and Europe together for the first time this year. Front-end yields fell notably, with markets now pricing almost 3x cuts from the Fed by year-end, and curves seeing considerable bull steepening.
Additionally, politics remained on the agenda for markets in July, with plenty of developments for investors to focus on. In particular, the French legislative election was a key event at the start of the month, and the Franco-German 10yr spread tightened by -9.0bps in July, coming down from its elevated level at the start of the month. To some extent, the gridlocked outcome was actually reassuring to markets, on the grounds that it would be difficult for anyone to implement their programme, avoiding any major policy shifts.
Developed market equities outperformed Emerging market ones in July. US equities underperformed despite the risk-on rotation. Nasdaq underperformed notably, as megacap Tech names suffered adversely from the broadening and systematic de-grossing. On the other hand, European equities outperformed marginally even as market internals saw a risk-off cyclical-to-defensive rotation, although Banks fared better. Italy and Spain outperformed France and Germany, helped by their higher domestic/defensive/banks exposure. Also, the Austrian equity market (ATX) benefitted from its higher banking exposure with BAWAG and Raiffeisen Bank Int. delivering low double-digit performance. FTSE 100 also delivered strongly due to its defensive-value tilt.
Factor Performance: Factor leadership shifted in July with Value seeing a sharp revival as rate cut hopes strengthened belief that that cycle could extend further. The rotation also benefited Size (small caps) for the same reason, especially with Russell 2000 seeing best returns ytd. Low vol also outperformed, helped especially by the defensive leadership in Europe. Growth/Quality underperformed as the sharp Tech pullback led the factor to its worst return this year.
Sector Performance: Sector leadership turned Defensive globally. Tech underperformance was a major drag for Cyclicals, although Discretionary underperformed too, especially in Europe as Q2 results were soft. Industrials and Materials fared better though. Banks continued to do well on strong results, capital returns and the possibility of rate cuts boosting the credit cycle. Other rate cut beneficiaries like Real estate and Utilities also had a decent month. Among other Defensives, Staples and Healthcare outperformed while Communication services fell given its Tech tilt.
Autor:
Andreas Wosol
Member of the board of ÖVFA
Amundi Austria GmbH, Head of Value
2 August 2024
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Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.