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The portfolio trimmed exposure to Information Technology in July, with the Financials sector being the main beneficiary of the sales proceeds. 

The mild CPI report on July 11th kicked off a violent rotation out of mega-cap stocks, with the Russell 2000/S&P 500 performance differential at +4.5% for the day. Other factors reversed as well, with all major styles posting inverse performance relative to their year-to-date numbers.

Is the market overreacting to recent economic data? Concerns about a growth slowdown are replacing the optimistic outlook of early 2024. Our Recession Dashboard shows increased risks, with notable declines in housing, employment, and consumer confidence. Despite this, equity and credit markets remain resilient. As we navigate these uncertain times, discover how upcoming elections and potential economic policies could shape the future.

Domestic equities lost a little over 3% in the second quarter. Seven styles posted declines in that range, only to be countered by the continued outperformance of mega-cap growth stocks, which gained almost 10% for the quarter. This odd mix of returns left the S&P 500 up 4.3%, although that was clearly not the central tendency of equities in 2Q24

With multiple rate cuts nearly assured through year-end, investors can profit from the iron-clad link between changing rates and bond fund prices. But there are two circumstances that introduce complexity: 1) the yield curve will likely un-invert during this process, and the longest duration funds may therefore not experience the strongest price response; 2) potential changes in credit spreads may either enhance or diminish the duration effect felt by corporate bonds.

A second push on July 31st propelled the S&P 500 to another positive month (+1%). Now, if the S&P 500 fell to the 25th percentile (1957-date), it would lose 50%. Using the history since 1995, the downside is 35%.

Confidence was shaken in the bulletproof Mag 7 as only Tesla and Apple (the YTD laggards of the esteemed group) escaped what was otherwise a fairly uniform 5-6% haircut. Those seven magic names shaved 70 bps off the S&P 500’s narrow monthly advance (but still account for half of the index’s YTD performance).

Russell 2000 Value gained 12.2% for July and was easily the best performing style box. As we move into August, YTD results across all style boxes look much more uniform.

The S&P 600 (+10.7%) outperformed the Equal Weighted S&P 500 (+4.4%) in July—the widest margin in three-and-a-half years (these two indexes are the best proxies for this vignette). Our Ratio of Ratios, in turn, shrank by a similar margin.

The Up/Down ratio reads 1.13—this marks the 10th consecutive quarter of below-average “one-month” results, with eight of those coming in at a level previously reserved only for economic recessions (including the current reading).

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The S&P 500’s Q2 bottom-up estimated operating EPS sank 3% to $56.38 in the first month of reporting (Chart 1). This is a notable departure from the 2% rise we saw with the first month of Q1 results. One month is certainly not a trend but the most recent data brings some question into the above-average, no-erosion EPS estimates we have grown accustom to.

Read this week's MTI report.

Leuthold's Chief Investment Officer, Doug Ramsey, shares his thoughts and observations on today's market and what he sees looking ahead. After, he answers some of our client's questions moderated by Scott Opsal, Director of Research.

Multi-cap funds face two paradoxes that introduce subtle hurdles into their fund analytics. While it is desirable for a fund to rely on a sound investment process and to follow that process consistently, a successful multi-cap fund might not be able to meet both desires simultaneously. Second, a successful multi-cap fund will always be compared to the highest performing peer group while unsuccessful funds will be compared to a less successful set of peer funds. Attentive fund analysts can overcome the challenges we have identified in this study, assuming they are cognizant of the unique issues facing multi-cap and mid-cap funds. This report is intended to arm analysts with just such insights to ensure that benchmark and peer group comparisons are meaningful and constructive.

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In this episode of the Leuthold Podcast, Phil Segner provides a mid-year review of their "dreams" and "nightmares" portfolios for 2024 and finds some interesting results.

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The Core composite was up 0.1% in June. Narrow mega-cap leadership continues to negatively impact our all-cap equity approach on a relative basis, but short positions have performed well, providing strong positive long – short performance for the month and year-to-date.