Construction stocks lead a broad market advance

The markets shook off the cautiousness that immediately followed Wednesday's interest rate cut and there was a broad advance yesterday, with even the worst performing sector (Utilities) +0.35% The VIX fell back slightly to 16 - it hit 65 intraday on 5 August, its highest level since Covid in 2020. The main indices were; DJIA +1.26%, S&P 500 +1.7% and Nasdaq +2.51% (Mag7 +3.4%). On an equal weighted basis (our measure) the overall market was +1.42% with all market cap bands advancing fairly equally. Breadth was 74% (range of 12% to 88% over the last six weeks) with stronger daily volumes of 8.4b (the average daily volume over the last year of 7.8b). 

One day returns as follows - equal weight basis: Mag7 +3.44% (TSLA 7.4%, NVDA +4%, META +3.9% and AAPL +3.7%), large cap +1.42%, medium cap +1.73%, small cap +1.87% and micro cap +1.38%. On a 1 and 2 week equal weight basis; Market +3.7% and +4.3%, Mag7 +3.3% and +6.4%, Large caps +2.9% and +3.9%, Medium cap +4.6% and +5%, small cap +5.1% and +5.3% and finally Micro cap +2.8% and +3.6%. 

Following the interest rate cut on Wednesday most commodities were stronger on Thursday and Basic Materials was the best performing sector - Construction Materials, Iron & Steel, Aluminum and Speciality Chemicals. Gold lagged but was still +1.4%. Again there was no clear trend in the other sectors as whilst Tech was strong both Healthcare and Consumer Cyclicals lagged - for the second day running. Construction and Engineering helped push Industrials higher.

A notable number of 52 week highs in a most sectors: Consumer Cyclicals (Homebuilders, Hotels/Entertainment, Specialty Retailers) Financials across the sector, Industrials (across the sector) Real Estate (Residential and Commercial REITs for the last two weeks), Technology (Software and IT Services and Communication and Networking) and Utilities (Electric & IPPs). Notable high volume in Consumer Cyclicals (across the board) and Technology (across the board ex Telecom) both for the third day running.

Over the coming four week we will see Q3 results along with full year guidance. The Market will react to unexpected inflationary / recessionary news but we are now in a down cycle for interest rates and so the company guidance will be more important in driving the markets. Stable market are likely reveal some sector rotation and perhaps a long awaited recovery of the micro cap stocks that have underperformed large cap by 33% over the last 12 months.