Weekly Market Roundup
The week's central event was Friday's July jobs report, which came in soft and reset the market's rate expectations. The lighter print trimmed the odds of a September rate hike from roughly 50% to 44%, and Treasury yields plunged in response, with the move most pronounced at the long end. Equity markets read the news as good news for growth: the S&P 500 closed at a new all-time high on Friday, and gains were broad-based across the major indices. The Nasdaq led with a +5.19% weekly gain, the S&P 500 added +3.59%, the Dow Jones rose +2.25%, and the Russell 2000 gained +3.54%. International equities also participated, up +1.49%, helped along by a U.S. Dollar Index that broke down to bearish on both trade and trend.
Even with the rally, the underlying structure of the advance looks a lot like what we described last week. Semiconductor volatility remains, by a wide margin, the single largest swing factor behind the cap-weighted index's return, and that has not changed with this week's bounce. The iShares Semiconductor ETF (SOXX) was down roughly -21% over the trailing month at its worst before partially recovering, while the equal-weight S&P 500 (RSP) has moved in a far narrower, calmer band over the same stretch, up only modestly. A handful of mega-cap technology and semiconductor names are still doing the outsized work behind the headline index gains.
Elsewhere, Gold added another +7.2% on the week, breaking out to a new bullish trend and trade signal after eight consecutive higher lows, as the weaker dollar continued to reinforce the "down dollar, up stocks" dynamic that has been working in favor of our gold and international positioning. Bond market volatility remains elevated (the MOVE index sits at 76.12, up +15.8% month-over-month) even as equity volatility stayed compressed, with the VIX closing the week at 14.89 — comfortably within the lower-volatility range, even though the underlying market structure, as noted above, remains uneven.
The marquee release this week is Wednesday's CPI report, the first real test of whether disinflation is picking up where Friday's soft jobs data left off. A cooler-than-expected print would reinforce what the bond market is already pricing and could keep yields testing the low end of their recent range. ADP employment on Tuesday offers an early cross-check on the labor market ahead of next month's payrolls report, and PPI and initial jobless claims on Thursday round out the read on both pipeline inflation and labor market health. Retail sales and the University of Michigan's consumer sentiment survey on Friday close out the week and should help confirm whether the consumer is holding up as the labor market cools.
Friday's jobs report was a reminder that the labor market is the single data point doing the most to shape the policy outlook right now, and that argues for continued caution rather than complacency. A softer print is constructive for the rate outlook, but it is only one data point, and we would rather see it confirmed by the broader set of releases due this week, CPI, PPI, and retail sales among them, before reading too much into it.
Semiconductor volatility remains, in our view, the single largest swing factor behind the cap-weighted index's return, and this week's rally does not change that assessment. A sector that swung from roughly -21% to a partial recovery within a single trailing month is a reminder of how much of the S&P 500's and Nasdaq's headline return continues to be dictated by a small handful of extremely volatile names. We have intentionally limited our strategic exposure to the sector for exactly this reason: it is difficult to underwrite with confidence when sentiment and momentum, rather than fundamentals, are driving day-to-day price action. Our satellite portfolios remain positioned defensively, favoring value, high dividend, healthcare, and real estate exposure over direct semiconductor and mega-cap technology risk, and we expect to hold that posture until participation broadens meaningfully beyond a handful of names.
The weaker dollar backdrop continues to work in favor of our gold and international diversifiers, and we see no reason to fight that trend while the rate and inflation picture remains unsettled. As always, we would rather give up some upside in the most volatile pockets of the market than take on concentration risk we are not being adequately compensated for. That remains our posture heading into Wednesday's CPI report and beyond.
If you have any questions about the above, please reach out to us to set up a one-to-one meeting so we can review your situation.
Sincerely,
President
SBC Investment Management
P: (602) 641-5996 · M: (319) 520-2033 · E: bandrus@sbcinvestmentmanagement.com
Investment Analyst, Junior Portfolio Manager
SBC Investment Management
P: (435) 775-2950 · M: (435) 590-8317 · E: jrehkop@sbcinvestmentmanagement.com