Pictet Group
Weekly house view | Out of the race
The week in review
Last week saw a stark contrast between US small-cap and equal-weight indexes on the one hand and generic stock indexes on the other. Seen as especially well placed to benefit from falling inflation and upcoming Fed rate cuts, the small-cap Russell 2000[i] rose 1.7% on the week (in USD), whereas the less cyclical Nasdaq[ii] declined 3.65%. The rotation to small caps and cyclicals hurt the relative performance of ‘Magnificent Seven’ stocks, resulting in a fall of 1.95% for the S&P 500[iii]. This rotation comes in the midst of the Q2 reporting season, expected to show a broadening out of earnings growth beyond Big Tech. Stock indexes outside the US were generally on the back foot last week, with the Stoxx Europe 600[iv] down 2.7% (in euros) and MSCI EM Index[v] down 2.95% (in USD). In US Treasuries, the so-called ‘Trump trade’ led to a rise in yields, particularly on the long end of the curve. The Trump trade also resulted in a rise in the USD index, although the yen continued its comeback against the US dollar as a Bank of Japan rate decision later this month looms closer.
US inflation and rates
Joe Biden quit the US presidential race and endorsed his vice president, Kamala Harris, who is now the likely Democrat nominee. If she runs or is on the ticket, the campaign funds raised so far by Biden will be available.
Key data
US industrial production climbed 0.6% in June from the previous month (down from 0.9% in May) and was 1.6% higher than the year before. June retail sales in the US were basically unchanged from May. Over Q2 as a whole, retail sales were 2.5% higher than in Q2 23. Industrial production in China rose 5.3% year on year in June, down from 5.6% in May, while retail sales were up 2.0% y/y in June, well down from 3.7% in May. Elsewhere in Asia, Japan’s headline consumer price index (CPI) was at an annual rate of 2.8% in June, unchanged from May. Industrial production in the euro area declined by 0.6% y/y in May. In the UK, CPI remained on target at an annual 2% in June, unchanged from May, and buoyed by the ‘Taylor Swift effect’ pushing up hotel prices.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, Nasdaq Composite (net 12- month return in USD): 2019, 36.7%; 2020, 44.9%; 2021, 22.2%; 2022, -32.5%; 2023, 44.6%.
[iii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2019, 31.5%; 2020, 18.4%; 2021, 28.7%; 2022, -18.1%; 2023, 26.3%.
[iv] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, STOXX Europe 600 (net 12-month return in EUR): 2019, 27.6%; 2020, -1.5%; 2021, 25.5%; 2022, -10.1%; 2023, 16.5%.
[v] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, MSCI Emerging Markets (EM) (net 12-month return in USD): 2019, 18.9%; 2020, 18.7%; 2021, -2.2%; 2022, -19.7%; 2023, 10.3%.