Stocks continue recovery amid optimism. Following the early August sell-off, stocks rebounded strongly with Nasdaq leading the recovery, up 5.3% for the week, followed by the S&P 500, up 3.9%. This was supported by positive retail sales and cooling inflation data, its lowest reading in more than three years. However, the housing sector showed signs of strain with building permits and housing starts dropping to their lowest levels since the early pandemic.
European markets rallied alongside the US, buoyed by expansion of the Eurozone economy, +0.3% in 2Q. The Euro STOXX 50 and Dax were up 3.5% and 3.4% for the week. Over in Japan, the Nikkei 225 was up 8.7%, supported by a weaker yen and stronger than expected US economic data. China, on the other hand, saw modest gains despite posting weaker-than-expected industrial production numbers and continued declines in new home prices. The SHCOMP and Hang Seng were up 0.6% and 2.0% for the week.
Topic in focus: Tactical play on small caps as Fed policy eases. On Wednesday (14 Aug 2024), July’s CPI numbers came in lower than expected (2.9% y/y vs consensus 3.0% y/y), and it marks the first time since Mar 2021 that CPI has fallen below 3%. This strengthens the case for initiating a rate cut cycle in September which will likely benefit small caps. Medium-term momentum for the small caps space include:
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