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“Commerce with all nations, alliance with none, should be our motto.” – Thomas Jefferson
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
US stocks are looking to close out what has been a very strong quarter on a positive note. S&P 500 futures are slightly higher with a gain of 0.10%, while the Nasdaq is up 0.25%. Treasury yields are slightly higher, with the 10-year yield trading just below 4.4%. Crude oil prices, along with gold, are slightly higher, while Bitcoin is down over 2% and trading back below $59K.
In Asia, stocks had a mixed session with the Nikkei rallying 0.9% and South Korea gaining 1.0%. In the other direction, Hong Kong fell 0.6%. Chinese PMI data for June came in slightly better than expected for both the Manufacturing and Services sectors, with both coming in above 50, the threshold for expansion. In South Korea, Retail Sales rebounded 0.1% in May after falling 3.5% in April, but Industrial Production fell 3.0%, accelerating April’s 0.7% pace of decline.
European stocks are closing out the quarter on a much stronger note. The STOXX 600 is up over 1%. Germany is leading the gains (even though they were knocked out of the World Cup) with a gain of 1.5%, while France and Spain are both up 0.6% or less. Along with the strength in German stocks, Retail Sales in the country surprised to the upside, rising 1.1% versus forecasts for no change. In France and Italy, there was also some good news on the inflation front as CPI for June came in weaker than expected.
Getting back to the US, the only data on the calendar is the Chicago PMI at 9:45 and Consumer Confidence and JOLTS at 10 AM. In terms of earnings, we’ll also get reports from Nike (NKE) and Constellation Brands (STZ) after the close. NKE is coming off back-to-back quarterly reports of falling by double-digits, while STZ has reacted positively to each of its last five reports.
With a gain of 21.3% YTD, the Russell 2000 is on pace for its best first half of the year since 1991.
Because almost all the gains were squeezed into Q2, the small-cap benchmark is on pace for a quarterly gain of over 20%, which would mark the best quarter since the Q4 2020 post-Covid reopening rally (+31%), which was also the largest quarterly gain in the index’s history.
As the chart below illustrates, the period coming out of Covid not only included the Russell’s strongest-ever quarter but also two quarters within a three-quarter period when it rallied more than 20%.
The chart below shows where each prior quarterly 20%+ gain occurred within the long-term history of the Russell 2000. They have occurred within all stages of bull market cycles, so it’s hard to say much in terms of what they indicate, but it is worth pointing out that following the nine prior quarterly gains of at least 20%, the Russell 2000’s average change in the following quarter was a gain of 7.7% with positive returns 78% of the time. That’s more than twice the 2.8% average gain for all periods since 1979.
From a short-term perspective, small-caps look a bit stretched and have shown a slight loss of momentum over the past week. The index is also still trading 5% above its 50-day moving average, which means that a minor pullback wouldn’t even do significant technical damage.
The key test will be the recent index rebalancing. Many of the top-performing stocks that drove the Russell 2000 to these heights “graduated” to the Russell 1000 in last week’s rebalancing. For the rally to continue, the index will need some new blood to step up.
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