Pivoting Techs – by Justin Vaughn – Options Trading Report

(Justin Vaughn, Editor, Options Trading Report)

The Dow Jones Industrial Average and the Russell 2000 stepped up Friday as investors and traders, ready for the pivot to small cap value stocks, jumped started the two laggard indexes. As inflation signs continue to show cooling, along with indications the Fed is near a rate cut, the Dow Jones Industrial Average and Russell 2000 came alive, with Russell gaining 6% for the week. The S&P 500 had a dramatic week gaining 4.4%. Good continuing numbers of the CPI (consumer price index), even though Friday’s new data showed producer prices were up, gave the market confidence the economy was headed in the right direction, with buyers flocking to smaller cap value stocks. The S&P 500 logged an increase for the year of 18%. Early bank 2nd quarter earnings were a bit disappointing, with a mix of positive to negative, with overall expectations that banks in general would show better results in the 3trd quarter, heavy write-offs were prevalent this quarter. “These expectations are rising at the same time that we are seeing some softer economic data, said Emily Roland, co-chief investment strategist at John Hancock Investment Management. “Because the bar is elevated we’re just not seeing the stocks get rewarded even when they’re seeing these decent results.”

The market was all Trump on Monday as voters and investors were jumping on his bandwagon…en mass after the assassination attempt. The Dow Jones Industrial Average jumped 200 points and crested 40,000. Both the S&P 500 and Nasdaq Composite were positive up 0.3% and 0.4% respectively, as “negative fall-out from the Trump assassination was uneventful.

Tuesday was a banner day for the indices…,The Dow Jones soared 700 points setting another closing finish over 40,000. Both the S&P 500 and Nasdaq were moderately higher 0.6% and 0.2%. Again the Fed Chair Jerome Powell gave encouraging comments that lowering rates are on the horizon. The small cap Russell 2000 for the third day reared-its-head, up 76 points or 3.5%. With heavy tech, market favorites and chippers, the Russell has become the go-to-index, offering many forgotten value small-cap stocks with untapped potential. With a rate cut nearly a certainty in September, gold has flexed its head, rising to $2,470 an ounce, up nearly 20% since January 1, 2024. Central Banks heavy demand and recent Chinese purchases have pushed the shiny metal higher. Some analysts and gold specialists have suggested that a Trump victory would pressure gold much higher. “Citigtoup has predicted gold at $2,700 to $3,000 an ounce in 2025.” Bitcoin has strengthened to $64,565, leading its market sister Ethereum to the $3,456 a share level, the 2nd largest cryptocurrency. The super aggressive S&P 500 index has now hit new records 38 straight sessions.

Wednesday was a sell-off day… and pivot day as tech and high-flyers swapped exchanges. The Russell 2000 was active, almost rediscovered, adding high tech capital and value stock interest. In the past five days the Magnificent 7 has lost $1,182 trillion in value according to Dow Jones Market Data. It is the largest 5 day trading day loss in over two years. The Dow Jones was up 200 points on a day the the S&P 500 was off 1% and struggling to keep close to even.

Mortgage rates skidded all week with the 30-year fixed-rate leveling at 6.77% down from 6.89% last week. The 15-year fixed rate is standing at 6.05% down from a week earlier of 6.17%.

RUMBLINGS ON THE STREET

Doug Duncan, Fannie Mae’s chief economist, WSJ “Seven percent seems to be kind of a psychological level,” for home buyers Mr. Duncan said. If it ticks below7% you get a pickup,” in purchase activity, he said. “If it ticks back above 7% you get a slowdown.”

Pavilion Global Markets Analysts, Barron’s “The softer CPI print reinvigorated hopes of a soft landing, driving a rotation into smaller caps and value,” they wrote.

Jami Dimon, CEO JPMorgan Chase, WSJ “Market valuations and credit spreads seem to reflect a rather benign economic outlook,” he said. “But there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world.”

Bernard Baumohl, chief global economist at Economic Outlook Group, WSJ “I think there is a real risk that inflation will reaccelerate under a Trump presidency.”