MarketSurge powers the charts in this video.
Did you know that before last week, the small caps Russell 2000 index was flat year to date? This changed last week, as IWM had a massive rally. Inflation reports remain below estimates, improving the odds for one or more rate cuts this year. Lower rates are good news for companies with a lot of debt and no earnings. This is why laggards were among the top performers last week.
Keep in mind that historically the stock market pulls back after the first rate cut. Don’t be surprised to see a buy-the-rumor, sell-the-news scenario. This would mean a rally in anticipation of a potential rate cut/s and then a selloff after the Fed announces the first cut. This is just one way things can play out. The reasons behind it make sense – the Fed is considered too slow to move, so when they finally cut, it is usually because there’s undisputed proof that the economy has slowed down significantly. Being the contrarian and forward-looking beast the market is, I wouldn’t be surprised to see a selloff after the first cut is announced. There’s time until then. The next FOMC meeting is July 31. After that, Sept 18.
The new earnings season has just begun. As usual, financials rallied ahead of their earnings report and now are seeing lackluster reactions after the reports. I am more interested to see the reactions to tech earnings. NFLX, ASML, and TSM are among the first to report next week.
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