Rotation into small-caps, industrials and financials post-NVDA results is a sign of market strength. Still "summer of small-caps"

VIDEO: Today was a demonstration of the strength of this equity market as the largest stock fell and market broadened sharply led by small-caps (duration 4:51).

It is a sign of market strength that NVDA fell -6% post-EPS and yet the S&P 500 managed to gain, with stronger gains from small-cap stocks. As we noted earlier this week, the probabilities favored post-NVDA 1.39%  results would trigger a rotation, rather than risk-off.

• Pundits said “as goes NVDA, so goes the market” such as this X.com tweet and this is why stocks, in our view, were so soft on Wed. Investors expected the entire market to follow NVDA in either direction. Post-EPS, the largest stock (NVDA) in S&P 500 fell 6%.
• The rotation was broad-based as noted by our Head of Technical Strategy, Mark Newton, who noted a solid breadth expansion with 3:1 gainer/declines. In the S&P 500, this was led by Energy, Industrials and Financials. And small-caps IWM 0.59%  gained ~1%, leading gains.
• To us, this is essentially showing there is too much cash on the sidelines. We know there is $6 trillion of cash on the sidelines and growing. And many investors were cautious into NVDA results. To a lesser extent, we see this as a genuine rotation away from AI/tech into those groups which have shown leadership for the last several months.
• Overall, we see the resilience in equities as sign of market strength — to state the obvious, when largest stock declines but the overall market gains, this is not a weak market.
• But with NVDA now in the rear view mirror, the focus will shift back to macro:
  – Fri 8/30 8:30 AM: July Core PCE MoM
  – Fri 8/30 10:00 AM: U Mich 1-yr inflation expectations
  – Tue 9/3 9:45 AM: Aug F S&P Global Manufacturing PMI
  – Tue 9/3 10:00 AM ET: Aug ISM Manufacturing PMI
  – Wed 9/4 10:00 AM ET: Jul JOLTS Job Openings
  – Wed 9/4 2:00 PM ET:  Fed Releases Beige Book
  – Thu 9/5 8:30 AM ET: 2Q F Unit Labor Costs
  – Thu 9/5 10:00 AM ET: Aug ISM Services PMI
  – Fri 9/6 8:30 AM ET: Aug Non-Farm Payrolls
• So a lot of key macro in the next week. This Friday’s Core PCE will be important. The Street is looking for +0.16% MoM and any figure around that level is positive, in our view, as this would show that inflation continues to fall like a rock.

BOTTOM LINE: Small-caps lead, Fed is dovish

In any case, keep in mind the Fed is dovish and there is a focus on keeping labor markets strong. And with inflation softening, the mandate focuses on strong jobs. That acts as an implicit “put” on the equity market, as falling asset prices would threaten to weaken labor markets.

Given the dovish Fed, this remains our 2024 playbook:

• Stick with what is working
• Small-caps IWM 0.59%  IJR 0.49%
• Financials and Industrials XLI 0.98%  XLF 0.77%
• AI/Tech NVDA 1.39%  CDNS 1.24%  ARM AMD 1.97%  AIQ 1.32%
• Ozempic-related  LLY 1.79%  NVO 1.13%
• Bitcoin & Proxies
  $BTC MARA -1.53%  PYPL -0.93%  COIN -2.70%  MSTR 0.14%  SMLR -4.68%

But as we noted multiple times, we stick with the top 2 (small-caps and financials and industrials)

42 SMID GRANNY SHOTS: Updated list is below

SMID grannies are small and mid-cap stocks that appear in at least 2 of our 7 investment strategies.

• We believe the SMID granny shots could benefit from the multiple themes and secular tailwinds.

The Current Portfolio as of 7/16 is as follows (new additions in Bold):

Consumer Discretionary: BLD, CVNA, TPX, WSM
Industrials: ACLS, AIR, BLBD, FLS, MLI
Information Technology:  AGYS, AMKR, APP, AVPT, CRUS, CVLT, DAKT, FORM, MSTR, NSSC, PI, PLTR, PLUS, SPNS, UCTT, VECO
Communication Services: CARG, SPOT
Materials: EXP
Energy: LNG
Financials: CFB, IBCP, MCBS, TBBK, TREE
Healthcare: ADMA, BPMC, DNTH, MIRM, MNKD, NRIX, RNA, TGTX

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42 SMID Granny Shot Ideas: We performed our quarterly rebalance on 7/16. Full stock list here -> Click here

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PS: if you are enjoying our service and its evidence-based approach, please leave us a positive 5-star review on Google reviews —> Click here.

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Key incoming data September:

• 9/3 9:45 AM ET: Aug F S&P Global Manufacturing PMI
• 9/3 10:00 AM ET: Aug ISM Manufacturing PMI
• 9/4 8:30 AM ET: Jul Trade Balance
• 9/4 10:00 AM ET: Jul JOLTS Job Openings
• 9/4 10:00 AM ET: Jul F Durable Goods Orders
• 9/4 2:00 PM ET:  Fed Releases Beige Book
• 9/5 8:30 AM ET: 2Q F Non-Farm Productivity
• 9/5 8:30 AM ET: 2Q F Unit Labor Costs
• 9/5 9:45 AM ET: Aug F S&P Global Services PMI
• 9/5 10:00 AM ET: Aug ISM Services PMI
• 9/6 8:30 AM ET: Aug Non-Farm Payrolls
• 9/9 9:00 AM ET: Aug F Manheim Used vehicle index
• 9/9 11:00 AM ET: Aug NY Fed 1yr Inf Exp
• 9/10 6:00 AM ET: Aug Small Business Optimism Survey
• 9/11 8:30 AM ET: Aug CPI
• 9/12 8:30 AM ET: Aug PPI
• 9/13 10:00 AM ET: Sep P U. Mich. Sentiment and Inflation Expectation
• 9/16 8:30 AM ET: Sep Empire Manufacturing Survey
• 9/17 8:30 AM ET: Aug Retail Sales Data
• 9/17 9:00 AM ET: Sep M Manheim Used vehicle index
• 9/17 10:00 AM ET: Sep NAHB Housing Market Index
• 9/18 2:00 PM ET: Sep FOMC Decision
• 9/18 4:00 PM ET: Jul Net TIC Flows
• 9/19 8:30 AM ET: Sep Philly Fed Business Outlook
• 9/19 10:00 AM ET: Aug Existing Home Sales
• 9/23 8:30 AM ET: Aug Chicago Fed Nat Activity Index
• 9/23 9:45 AM ET: Sep P S&P Global Manufacturing PMI
• 9/23 9:45 AM ET: Sep P S&P Global Services PMI
• 9/24 9:00 AM ET: Jul S&P CoreLogic CS home price
• 9/24 10:00 AM ET: Sep Conference Board Consumer Confidence
• 9/25 10:00 AM ET: Aug New Home Sales
• 9/26 8:30 AM ET: 2Q T 2024 GDP
• 9/26 10:00 AM ET: Aug P Durable Goods Orders
• 9/27 8:30 AM ET: Aug PCE Deflator
• 9/27 10:00 AM ET: Sep F U. Mich. Sentiment and Inflation Expectation
• 9/30 10:30 AM ET: Sep Dallas Fed Manuf. Activity Survey

Key incoming data August:

• 8/1 8:30 AM ET: 2Q P Nonfarm Productivity Tame
• 8/1 8:30 AM ET: 2Q P Unit Labor Costs Tame
• 8/1 9:45 AM ET: Jul F S&P Global Manufacturing PMI Tame
• 8/1 10:00 AM ET: Jul ISM Manufacturing PMI Tame
• 8/2 8:30 AM ET: Jul Jobs Report Tame
• 8/2 10:00 AM ET: Jun F Durable Goods Orders Tame
• 8/5 9:45 AM ET: Jul F S&P Global Services PMI Tame
• 8/5 10:00 AM ET: Jul ISM Services PMI Tame
• 8/6 8:30 AM ET: Jun Trade Balance Tame
• 8/7 9:00 AM ET: Jul F Manheim Used vehicle Index Mixed
• 8/12 11:00 AM ET: Jul NY Fed 1yr Inf Exp Tame
• 8/13 6:00 AM ET: Jul Small Business Optimism Survey Tame
• 8/13 8:30 AM ET: Jul PPI Tame
• 8/14 8:30 AM ET: Jul CPI Tame
• 8/15 8:30 AM ET: Jul Retail Sales Data Tame
• 8/15 8:30 AM ET: Aug Empire Manufacturing Survey Tame
• 8/15 8:30 AM ET: Aug Philly Fed Business Outlook Tame
• 8/15 10:00 AM ET: Aug NAHB Housing Market Index Tame
• 8/15 4:00 PM ET: Jun Net TIC Flows Tame
• 8/16 10:00 AM ET: Aug P U. Mich. Sentiment and Inflation Expectation Tame
• 8/19 9:00 AM ET: Aug M Manheim Used vehicle index Tame
• 8/21 2:00 PM ET: Jul FOMC Meeting Minutes Dovish
• 8/22 8:30 AM ET: Jul Chicago Fed Nat Activity Index Tame
• 8/22 9:45 AM ET: Aug P S&P Global Manufacturing PMI Tame
• 8/22 9:45 AM ET: Aug P S&P Global Services PMI Tame
• 8/22 10:00 AM ET: Jul Existing Home Sales Tame
• 8/23 10:00 AM ET: Jul New Home Sales Tame
• 8/26 10:00 AM ET: Jul P Durable Goods Orders Mixed
• 8/26 10:30 AM ET: Aug Dallas Fed Manuf. Activity Survey Tame
• 8/27 9:00 AM ET: Jun S&P CoreLogic CS home price Tame
• 8/27 10:00 AM ET: Aug Conference Board Consumer Confidence Tame
• 8/29 8:30 AM ET: 2Q S 2024 GDP Tame
• 8/30 8:30 AM ET: Jul PCE Deflator
• 8/30 10:00 AM ET: Aug F U. Mich. Sentiment and Inflation Expectation

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: