Markets looking for direction as we await more inflation data

Today we have the August CPI report with expectations of 0.2% and 2.6% yoy and tomorrow the producer price figures are released. Both of these figures are likely to impact on expectations for the Fed decision on 18 September and whether there is a 0.25% or 0.5% cut, and hence short term Market direction. Inflation and job data will continue to hang over the Market this year but Q3 results and guidance in October will likely guide the Market direction for the rest of the year.

Following Monday's cross Market bounce the larger tech stocks led the way driving the Nasdaq and the S&P on Tuesday. The VIX remains relatively high but fell back to 19 - it hit 65 intraday on 5 August, its highest level since Covid in 2020. DJIA -0.23%, S&P 500 +0.45% and Nasdaq +0.84% (on the back of Mag7 +1.45%). On an equal weighted basis (our measure) the overall market was broadly flat +0.12%. Breadth was 48% (vs 12% on 5 August and a high of the mid 80s% at the end of July) and daily volumes of 7.7b were muted considering the holiday period is over (the average daily volume over the last year of 7.9b).

One day returns as follows - equal weight basis: Mag7 +1.45% (TSLA +4.6%, AMZN +2.4%, MSFT +2.1%), large -0.12%, medium -0.33%, small -0.02% and micro +0.39%.

On a 1 and 2 week equal weight basis; Market -1.3% and -3.7%, Mag7 +0.4% and -2.8%, Large caps -0.8% and -1.6%, Medium cap -1.5% and -3.2%, small cap -2.1% and -4.4% and finally Micro cap -1.0% and -4.0%.

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.

Real Estate and Utilities continue to be the best performing sectors over both 1 and 2 weeks. On a one week basis Real Estate +2.25% driven by Residential and Commercial REITs and Utilities +0.53% (Water +1.68% and Multiline +0.71%). Healthcare has been relatively strong post Friday's nonfarm figures and is +2.1% since the start of the week driven by Biotech stocks.

On a one day basis Blockchain and Cryptocurrency was +4.9% (SMX +48%) yesterday and Uranium +3.2% (UROY +8.9%, UUUU +5.6%). Other strong industries included Heavy Electrical Equipment +3.2% (SWCO +9.4%, HYLN +6.6%), Department Stores +2.5% (LITB +41%) and Advertising & Marketing +2% (UBXG +26%, MOBQ +15%, GDC +6.3%)