“Cooling U.S. inflation has boosted hopes of a September rate cut, which in turn unleashed a powerful reversal in the Dow Jones-to-Nasdaq ratio and the Value to Growth ratio in July … Rotation Also Benefited the Size Trade. The size effect was visible even within the S&P 500, where the S&P 500 EW easily outpaced the S&P 500 in July. As shown below, the S&P 500 EW to S&P 500 ratio bounced hard. Similarly, the S&P 600 to S&P 500 ratio enjoyed a strong upside reversal.
“The assassination of Hamas political leader Ismail Haniyeh in Tehran on Wednesday has moved this conflict appreciably up the escalatory ladder and edges the region closer to a wider war … Haniyeh’s death came less than 24 hours after an IDF airstrike in the suburbs of Beirut killed senior Hezbollah commander Fuad Shukr, and has been followed today by Israel claiming the mid -July killing of Hamas military leader Mohammed Deif.
“A bright spot was water technology, where a consistently increasing number of companies are providing positive descriptions of their water solutions business in July disclosures going back to 2022. Companies from our coverage that gave favorable mentions to their water-related business segments in July 2024 include DD-NYSE, ECL-NYSE, FBIN-NYSE and VLTO-NYSE.
“Wednesday’s Fed rate-cut euphoria gave way to Thursday’s geopolitical concerns and harsh ISM realities as the SPX closed down 0.2% WTD. Large-cap Value and Growth performed similarly … We again saw divergent returns by market cap, as small caps are down 3.3% WTD, with essentially the entire decline occurring yesterday on the soft ISM data. This suggests the rotation is predicated not only on Fed easings but also a benign economic backdrop. The 2yr UST is the “tell.