The quiet before the August nonfarm storm?

The indices were fairly volatile yesterday and all were in both positive and negative territory during the day. The VIX remains relatively high and is down slightly from Tuesday at 21 - it hit 65 intraday on 5 August, its highest level since Covid in 2020.

Market breadth was fair on Wednesday but volumes were soft with all eyes likely looking towards the August nonfarm figures that get released tomorrow (Friday), the median estimate appears to be c160k although there are some outliers higher. Released on 5th August the July nonfarms spooked the Market coming in at 114k vs 175k expected. A reading of 50k either side of the 160k expectations could see the Market swing violently either way tomorrow. On the 18th of September we get the Fed interest rate decision.

On Wednesday the indices were; DJIA +0.09%, S&P 500 -0.16% and Nasdaq -0.30%. On an equal weighted basis (our measure) the overall market was down -0.27%, all market cap bands were down although mega/large cap stocks performed best. Breadth was an improved 42% from 18% on Tuesday (vs 12% on 5 August and a high of the mid 80s% at the end of July) and daily volumes of 7.3b were light (vs the average daily volume over the last year of 7.9b).

One day returns as follows - equal weight basis: Mag7 -0.07% (TSLA +4.2%, NVDA -1.6%), large -0.07%, medium -0.04%, small -0.18% and micro -0.44%. On a 1 and 2 week equal weight basis; Mag7 -2.1% and -5.5%, Large caps -0.6% and -0.5%, Medium cap -1.1% and -1.0%, small cap -1.6% and -1.3% and finally Micro cap -2.4% and -2.5%.

On a weekly basis the market was flipping between favouring large caps to back to small/micro the following week. Our risk monitor remains in favour of the larger cap stocks and this performance differential 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 but as we approach the release of August nonfarm the small and micro cap stocks (higher perceived risk) have started to lag again and differential increased by almost 1.5% this week.