Market Commentary Weekly Review | 21st July 2024

Stock market indices recorded mixed results: in Europe, most indices fell, while in the US, small-cap companies and value stocks recorded positive returns. The Russell 2000 rose 1.68% while the Nasdaq 100 fell nearly 4%. Value stocks outperformed growth stocks by as much as 477 basis points when evaluated according to the Russell indices.

Share prices of chip companies experienced a big fall. This was influenced by Mr. Biden’s statement regarding possible trade restrictions on companies supplying advanced semiconductor technology to China.

The annual inflation of the Eurozone reached 2.5%, the United Kingdom — 2%.

The European Central Bank has decided to leave the current interest rate level of 4.25%. C. Lagarde promised that the board will make decisions on further actions based on the latest data.

China’s annual GDP growth was 4.7%, missing the 5.1% forecast by economists.

US: Capital rotation in the market and positive macroeconomic data

The U.S. stock market posted mixed results, with this year’s leader the Nasdaq 100 down nearly 4%, the S&P 500 down just under 2%, but the Russell 2000, which includes small-cap companies, rose 1.68%. The last week saw a continued rotation of capital into small-cap companies and value stocks. Value stocks outperformed growth stocks by as much as 477 basis points when evaluated according to the Russell indices.

One of the main reasons for the poor performance of growth stocks was the decline in shares of companies in the semiconductor industry. The Vaneck Semiconductor ETF, which includes companies in the industry, fell as much as 9.59% for the week, while Dutch semiconductor equipment supplier ASML fell more than 17%. Shares of chip companies fell sharply after Mr. Biden said the U.S. would impose trade restrictions on partners if companies such as ASML or Tokyo Electron continued to supply advanced semiconductor technology to China.

Most of the released US macroeconomic data exceeded economists’ expectations. Retail sales excluding the volatile auto and gas segments rose 0.4% for the month, when analysts had forecast a 0.1% increase. In addition, industrial production recorded strong growth for the second month in a row, rising 0.6% in June. Finally, the Philadelphia Fed’s manufacturing index jumped as much as 13.9 in July, after analysts had forecast 2.7, and the index measuring business conditions reached its highest reading in three years.

Last week’s big drop was Microsoft, which experienced technical problems, and its share price fell 3.62%. Meanwhile, UnitedHealth (10.52%) and Johnson & Johnson (3.21%) registered a positive change.

Europe: ECB decision to leave interest rates unchanged and mixed inflation data

European stock indices fell last week: Germany’s DAX fell by as much as 3.07%, France’s CAC 40 by 2.46%, and the UK’s FTSE 100 by 1.18%.

The Governing Council of the ECB decided to leave the current interest rates at 4.25% as expected. The president of the bank C. Lagarde assured that the board will base its decisions on the latest macroeconomic data in the near future. In addition, the Board expects inflation to remain at current levels until 2025.

The revised euro zone inflation data more or less met analysts’ expectations. True, after excluding food and energy prices for inflation, monthly growth reached 0.4% and exceeded economists’ forecast of 0.3%. The annual inflation rate was 2.5% and decreased by 0.1% compared to last month’s result.

Meanwhile, in the United Kingdom, the price level data was slightly higher than expected. While annual inflation remained at 2%, inflation excluding food and energy prices maintained annual growth of 3.5%, when economists had forecast a decline to 3.4%. A big surprise came from the country’s retail sales data — during the month, the fall in these sales reached as much as 1.2%, when analysts projected a contraction of 0.6%. Finally, according to the latest data, the UK unemployment rate remained at 4.4% as expected.

In Germany, the price of Siemens shares fell by as much as 7.45%. Meanwhile, in France, luxury goods industry companies continued their difficult period — LVMH fell 6.21%, Kering — 7.12%.

Asia: Japan’s trade activity decreased and China’s GDP growth fell short of expectations

Asian stock indexes also recorded mixed results, with Hong Kong and Japanese stock markets falling sharply, with the Hang Seng down as much as 4.79% and the Nikkei 225 down 2.74%. Meanwhile, mainland China’s CSI 300 rose 1.81%.

Japan reported annual inflation last week at 2.6%, with analysts forecasting a rise of 2.7%. Meanwhile, the country’s exports grew by 5.4% year-on-year, when the forecast was 6.4%, and imports, which grew by 3.2%, also fell short of the 9.3% forecast. The Japanese yen strengthened slightly during the week, but the current level remains one of the lowest in decades. There is speculation that the central bank may raise interest rates again at the BoJ meeting at the end of this month.

In China, the GDP result was announced — the annual growth of this indicator reached 4.7% and was even 0.4% behind the forecast of analysts. This was a decrease of 0.7% compared to the previous quarter. Meanwhile, retail sales also grew less than expected, registering a 2% rise when economists had projected a 3.3% gain.