Wall Street always names eras. A recent Bloomberg comment was “for all the attention lavished upon the Magnificent Seven and the top heavy drivers of equity returns recently, it may be the cast that the group has already split, a sort of financial equivalent of a one hit wonder.”
Year to date, market performance has been driven by what may soon be known as the Fab 4—NVDA, META, MSFT and AMZN. The remaining members of Magnificent Seven –AAPL, TSLA and GOOG—are now albatrosses around the market’s neck.
An argument can be made a new market lexicon—The Dynamic Dou—may replace the Fab 4 if lofty expectations for the remaining members do not materialize.
While the above labeling might be cute, it also expresses the extreme one sidedness and risk associated in the market indices. It is perhaps the most crowded trade in history. Market history is not gentle when such trades implode as they all do in specular fashion.
The initial catalyst for the rally that commenced in late 2023 was the belief that monetary policy will radically change in 2024. As recently as three weeks ago, six or seven interest rates were fully discounted. Today only three.
Monday, Atlanta Fed President Raphael Bostic expects the first interest rate cut to occur sometime in the third quarter and then the Fed will pause to assess how the policy shift is affecting the economy. Bostic further stated, “I would probably not anticipate back-to-back interest rate cuts.”
Will FRB Chair Chairman Powell echo similar remark today and tomorrow during his semi-annual congressional testimony about the state of the economy?
Commenting on yesterday’s markets, several of the tech heavy weights came under pressure sending the NASDAQ down about 2%. Equity markets were unmoved by the mixed data. The Treasury market, however, advanced sending yields lower across the curve.
What will happen today? Will the markets be moved by FRB Chair Powells’s Congressional testimony on the state of the economy and monetary policy? The JOLTS Job openings and the ADP Private Sector Employment Survey are also released today.
Last night the foreign markets were up. London was up 0.39%, Paris up 0.11% and Frankfurt up 0.05%. Chia was down 0.26%, Japan down 0.02% and Hang Seng up 1.70%.
Dow and NASDAQ futures are up 0.25% and 0.50%, respectively ahead of Powell’s testimony. The 10-year is off 1/32 to yield 4.16%.
