Benign inflation helps maintain a broad Market advance

Ahead of the Fed's interest rate decision on 18th, the Market continued to run on Friday. This followed the benign inflation numbers that were released during the week. The VIX remains relatively muted as it fell back to 16.5 - it hit 65 intraday on 5 August, its highest level since Covid in 2020.

DJIA +0.72%, S&P 500 +0.54% and Nasdaq +0.65%, the Mag7 stocks held the indices back when compared to the wider Market advance. On an equal weighted basis (our measure) the overall market was up +1.82%. Breadth was a healthy 77% (vs 12% on 5 August and a high of the mid 80s% at the end of July) but volumes were generally soft at 7.4b (the average daily volume over the last year of 7.9b). All sectors advanced ahead of the headline indices.

One day returns as follows - equal weight basis: Mag7 +0.32%, large +0.93%, medium +1.63%, small +2.28% and micro +1.84%.

On a 1 and 2 week equal weight basis; Market +4% and -0.6%, Mag7 +7.3% and +1.3%, Large caps +3% and -0.4%, Medium cap +3.5% and -0.6%, small cap +4.2% and -1% and finally Micro cap +4.2 and -0.4%. Our risk monitor remains in favour of the larger cap stocks. This performance differential in favour of large cap was magnified after the poor July nonfarm payroll figures and the associated wider Market retreat. Much of the adverse differential reversed in the middle of August. Interestingly the Small and Micro held up fairly well relative to Large post the August nonfarm figures and Micro has actually outperformed Large over the last week.

Yesterday's sectors performance favoured the Bull sectors with the addition of Real Estate (Real Estate Services +2.8%). Basic Materials was easily the strongest sector driven by Diversified Chemicals +3.6% and Silver +4.2%, Gold +2.6% was also strong as it has been for the last week on the back of expected interest rate cuts in the coming week. Consumer Cyclicals were strong with Speciality Retailers (+3.7%) leading the way. Healthcare and particularly Biotech bounced back after yesterday's profit taking.

A notable number of 52 week highs in a most sectors: Financials across the sector, Real Estate (Residential and Commercial REITs for the last two weeks), Technology (Software and IT Services) and Utilities (Electric and IPPs). Notable high volume in Consumer Cyclicals (across the board) and Technology (across the board) both for the second day running.