August 2024
Market Update

The Stock Market Experienced a Big Rotation in July

Monthly Market Summary

• The S&P 500 Index gained +1.2% in July, underperforming the Russell 2000 Index’s +10.3% return. Ten of the eleven S&P 500 sectors traded higher, led by Real Estate, Utilities, and Financials. Technology was the only sector to trade lower, reversing a portion of its rise in the first half of 2024.

• Corporate investment-grade bonds produced a +2.6% total return as Treasury yields declined. Corporate high-yield bonds gained +2.3% as credit spreads tightened.

• International stock performance was mixed. The MSCI EAFE developed market stock index returned +2.6%, while the MSCI Emerging Market Index returned +0.8%.

Stocks & Bonds End the Month Slightly Higher

The S&P 500 ended July slightly higher, its third consecutive monthly gain. The index initially traded higher and briefly surpassed 5,600 for the first time before it traded lower in late July and gave back some of the gains. The tech-heavy Nasdaq 100, which led markets higher in 1H 2024, returned -1.7% as Nvidia, Microsoft, Google, and Facebook-parent Meta traded down after their strong 2024 start. In contrast, the Russell 2000 Index of small-cap stocks posted its strongest monthly return since December 2023. In the bond market, Treasury yields fell. The U.S. Bond Aggregate Index, which tracks a wide array of investment-grade bonds, traded higher for a third consecutive month, the longest win streak since 2021. Despite the muted headline returns, the stock market experienced a seismic shift as expectations increased for a September interest rate cut.

Investors Rotate into Small Cap Stocks as Rate Cuts Come into View

Large-cap stocks dominated in the first half of 2024, with the S&P 500 outperforming the Russell 2000 by over +13%. The S&P 500’s strong first half return was influenced by two factors: (1) investor concerns about the impact of high interest rates on smaller companies and (2) large-cap stock indices’ exposure to the artificial intelligence (AI) industry. This combination of interest rate concerns and AI dominance led to crowded positioning as investors focused on a narrow group of large-cap stocks.

The investment narrative changed in July after the CPI inflation report showed continued progress. The better-than-expected inflation report raised expectations for a September interest rate cut, leading to a significant rotation within equity markets. Investors moved from large-cap stocks into small caps, with the Russell 2000 outperforming the S&P 500 by over +9% as seen in the following chart.

Source: YCharts. SPY (Large Cap) vs. IWM (Small Cap), Data from 6/30/2024-7/31/2024.

This year’s high-flying mega-caps bore the brunt of the large-cap sell-off as investors questioned when billions of dollars in AI investments will pay off. As investors rotated, the year-to-date return gap between the Nasdaq 100 and Russell 2000 shrank from nearly +16% at the end of June to now only +3.3%. It’s uncommon for the stock market to experience such a large shift in such a short amount of time. There could be some residual volatility in the near term as markets weigh the prospects for corporate earnings and interest rate cuts, but the market isn’t expecting a repeat in August.

Source: YCharts, 6/30/2024 - 7/31/2024, Total Return Data using SPY, DIA, IJH, IWM, QQQ, EFA, VWO, AGG, and JNK.  2024 returns as of 12/31/2023.

Current Positioning

The past month has demonstrated how quickly market dynamics can change.  Despite the significant strengthening of small-cap stocks due to expectations of lower interest rates, uncertainty remains: will economic growth slow down, leading us into a recession, or will the economy remain resilient?  Considering the intermediate-term trends, we have maintained a preference for large-cap stocks.  The recent shift towards broader market participation and the resurgence of smaller-cap stocks may indicate a healthier overall market structure.  As we move forward, we’ll continue to monitor these trends and market breadth to navigate the evolving landscape and make informed investment decisions.   

As we turn our attention to the bond markets, upcoming economic data will be crucial as the Fed decides when and how quickly to lower rates.  Currently, the market anticipates the Fed will reduce rates in September, with possibly one or two additional cuts by the year’s end.  These expectations have led to a rapid decline in Treasury rates, boosting bond prices.  Our Total Return Bond Strategy remains fully invested and continues to boast an attractive yield of over 7%.  This high dividend has provided a buffer during recent volatility, and as long as the prices remain stable, we should be able to stay invested.  However, if trends change, we will shift to safer investments to preserve capital. 

If you are concerned about your risk level, please reach out to us, and schedule a time to review your allocation and financial plan.

Upcoming Events

Client Appreciation Event – Real Salt Lake Soccer Game & Dinner

Copperwynd Financial is excited to announce our Summer Client Appreciation Event in Salt Lake City, Utah!  We are hosting this event at Rio Tinto Stadium, home of the Real Salt Lake Soccer team on Saturday, August 24, 2024. 

The Real Salt Lake team is consistently among the league’s top teams, and are set to face another quality MLS opponent, the San Jose Earthquakes. 

• Dinner will be served prior to kick off at the AFCU Pavilion at 5:30 PM – 7:15 PM.

• Game kicking off at 7:30 PM

If you are interested in attending this event with us, please email Kim Costlow at kcostlow@copperwyndfinancial.com or call the office with the following information:

• Number of tickets

• Names of those attending

** Please be advised that the tickets will only be available electronically – via Geek Seat and will be sent to those with a RSVP closer to game day **

Please note that reservations are on a first come basis – so register now, as these events fill quickly.  We welcome you to invite friends and/or family but note that each household will be limited to four tickets. Requests for more will be placed on a standby list.

** There will be more information sent to attendees regarding access to the tickets as we get closer to game day. **

As always, we appreciate you and your business and look forward to seeing you at the game!

If you have any questions, please do not hesitate to contact our office at 480-348-2100.

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To download the August 2024 Newsletter: CLICK HERE