Market Update – July 22nd, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, July 22nd, 2024

Financial Markets

Last week provided a breather for stocks amid significant geopolitical events. A global technology outage on Friday wreaked havoc on IT systems in a variety of industries following a routine update from the cybersecurity firm CrowdStrike. Over the weekend, President Biden announced on Sunday that he will not be running for re-election. As of Monday morning, these updates have not had a drastic impact on stocks, but we will continue to closely monitor markets and geopolitical factors as always.

We also saw chip stocks sell off last week, guiding tech-heavy indexes lower due to concerns over trade policy shifts and geopolitical tensions with China. As of close on Friday, July 19^th, the S&P 500 fell -1.97% and the Nasdaq Composite fell -3.65% for the week, while the value-heavy Dow Jones Industrial Average rose +0.72%. In fixed income markets, the Barclays Aggregate Bond Index fell -0.35% last week.

Market News

Friday’s Global IT Outage

Airlines, financial services, medical facilities, and various other industries faced a global IT outage Friday morning, due to an update from cybersecurity firm CrowdStrike. Fortunately, the CEO of CrowdStrike, George Kurtz, quickly confirmed that it was not a malicious hack or security breach but rather a flawed update that could be repaired. Despite having a solution, the outage caused significant disruptions, halting economic activity for many industries.

For example, airlines faced widespread delays and cancellations, which will result in lost revenue and mounting costs. The outage also affected numerous financial institutions, hospital systems, TV broadcasts, 911 services in Alaska, and even primary elections in parts of Arizona. Our own custodian, Charles Schwab, experienced an outage on Friday, restricting accounts from trading. Consequently, CrowdStrike’s stock plummeted as investors anticipate fallout from this significant IT outage.

Below, see how CrowdStrike stock reversed half of its YTD gains in one trading session on Friday due to the tech meltdown:

Retail Sales

June retail sales figures exceeded expectations, remaining flat month-over-month compared to the anticipated decline. Year-over-year, retail sales were up just 2.3%, however, when adjusted for June’s 3% CPI, this represents a -0.7% inflation-adjusted decline from June 2023.

Within this month’s data, the auto category put a drag on total retail sales. In fact, excluding auto, June sales were up 0.4% from May and 3.4% from June 2023. Nonstore retail sales, which includes online shopping, were the strongest category, up 8.9% from a year ago. June’s retail sales numbers, although better than expected, appear to support the case for a soft landing and a potential Federal Reserve rate cut in September.

Leading Indicators

The Conference Board US Leading Economic Indicators Index (LEI) is a measure of 10 leading economic indicators, such as manufacturing data and the S&P 500, that aims to predict turning points in the business cycle. In June, the US LEI continued to trend down, though the size of the contraction was smaller than in the past three months.

The decline was driven by gloomy consumer expectations, weak new orders, a negative interest rate spread, and an increased number of initial claims for unemployment. On the other hand, a few elements of the LEI were positive despite the index as a whole continuing to appear bearish in June. Stock prices, the Leading Credit Index, and building permits were positive factors of the month. 

Also in this month’s report, the Conference Board noted that the smaller month-on-month rate of decline has made the LEI’s long-term growth less negative, pointing to a slow recovery signal, rather than a recession. This aligns with our view that the US economy could avoid a recession altogether. Additionally, the June LEI was an updated data point in our assessment of recession indicators, which remained unchanged in total bullishness/bearishness from last week’s update, although the LEI is less bearish than last month.

Residential Construction Slump

In a housing market still grappling with high costs for both renting and owning homes, new construction has been limited by higher rates. June’s housing data was reported last week, clocking in building permits at 1.45 million, housing starts at 1.35 million, and completions at 1.71 million.

Although these figures can be useful, the broader trends in residential real estate are more important than one month of data. After rising post-pandemic due to low borrowing costs, new residential permits and starts have declined since 2022 as the Federal Reserve increased rates to combat inflation. Higher rates have limited new supply, perpetuating higher housing sector inflation.

Summary

Geopolitical events characterized the week, including a global technology outage on Friday and President Biden’s decision not to run for re-election over the weekend. Chip stocks led a market decline last week on trade policy and geopolitical concerns with China, lowering tech-heavy indexes. June retail sales outperformed expectations, but still demonstrated a slower economy, suggesting a potential Federal Reserve rate cut in September. The Conference Board’s Leading Economic Indicators Index continued to appear bearish but less bearish than a few months ago, pointing to the possibility of a slow recovery. Finally, the housing market continued to face high rates, limiting new construction and perpetuating inflation.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.