A daily market update from FS Insight — what you need to know ahead of opening bell

“Stay far from timid, only make moves when you’re heart’s in it, and live the phrase ‘the sky’s the limit’.” — The Notorious B.I.G.

Over the Weekend

Trump shooting at Saturday rally marks dark day in American politics WSJ

Bill Ackman and Elon Musk endorse Trump’s 2024 bid for president after shooting WSJ

Meta lifted restrictions on Trump’s accounts Friday CNN

The Republican National Convention begins in Wisconsin; Donald Trump plans to speak RT

U.S., Germany foil Russian plot to kill defense executive WSJ

Fed sends clearest signals yet that it will soon cut interest rates FT

Fed Chair Jerome Powell will join a ‘fireside chat’ with the Economic Club of Washington, D.C., today C-SPAN

China’s economic growth slowed and missed forecasts in the second quarter FT

Chinese leaders meet this week to set the country’s economic agenda for the next few years Semafor

Hong Kong government working on its own version of ChatGPT after OpenAI restricts access Semafor

Goldman challenges Fed’s demand it hold more capital after stress test FT

Fed up with their car-insurance bills, drivers shift gears WSJ

Samsung’s chip crisis: AI ambitions hit by unprecedented worker unrest FT

Florida’s ‘Space Coast’ is on track for a record number of rocket launches this year, after the 50th rocket took off from the region last week Semafor

A quantum computer made by a UK-based startup smashed a record for the accuracy of its calculations previously set by Google Semafor

U.K. universities want millions from new government for startups hatched in academia Semafor

SpaceX seeks more experimental rocket launches, aiming for Mars WSJ

StubHub delays IPO launch due to choppy market conditions WSJ

Why the Synapse bankruptcy has the fintech world on edge WSJ

Google near $23 billion deal for cybersecurity startup Wiz WSJ

Israel says it targeted October 7 mastermind in strike WSJ

Bitcoin is losing the hearts and minds of criminals, who now prefer stablecoins Chainalysis

America’s HR lobby scraps the ‘E’ from DEI WSJ

Shannen Doherty, 90210 and Charmed actress, dies at 53 RT

Richard Simmons, once-iconic fitness guru, dies at 76 WSJ

Ruth Westheimer, Dr. Ruth, who taught generations to talk about and enjoy sex, dies at 96 WSJ

England’s national team breaks 67-plus million hearts as it loses to Spain in the UEFA men’s European championship FT

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

To us, the most compelling near-term investment case is small-cap stocks (IWM). We believe small-caps can gain as much as +50% in 2024, while so far they are up only 6%. The astonishingly low June CPI, in our view, is giving the “green light” for small-caps to continue to rally.

The failed assassination attempt against Trump is positive for Bitcoin, Cyclicals, negative for Energy, Healthcare.

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TECHNICAL

U.S. Equity indices look to have shaken off the minor pullback attempt of mid-last week and are beginning yet another leg higher, which should prove more broad-based in participation than what’s been seen in recent months. Breakouts in the Equal-weighted S&P 500, along with Russell 2000, on Friday are both conducive to thinking that some mean reversion is taking hold in some of the formerly underperforming sectors. Meanwhile, some stalling out in Tech relative to the broader market is possible in the short run. However, we don’t expect that this will prove too long-lasting before Technology starts to turn up again. Bottom line: Small-caps now look to be in the zone where they can begin to show some relative strength, and we expect that Equal-weighted S&P 500’s rally will continue. However, it’s difficult to say just yet that meaningful outperformance vs. Technology will occur.

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CRYPTO

In our latest video we continue to discuss how the market is working through the “supply overhang” issue, the downside risk posed by the Gox coins, and why we think it is important to stay allocated here.

Click HERE for more.

First News

Big-Time for Small-Caps? Small-cap stocks gained ground last week after the latest CPI number came in weaker than expected, buttressing the chances of a rate cut. Still, small and mid-sized businesses are struggling to survive, with many going underwater this year.

Nearly 350 companies filed to either liquidate or re-organize through bankruptcy in 1H24 – the highest half-year level since 2010, when 467 filed, per data from S&P Global Market Intelligence. Just last month, 75 companies filed for bankruptcy – the largest monthly total since early 2020.

Most of the businesses that have gone extinct are in the Consumer Discretionary category, meaning that they sell goods or services that people don’t necessarily need on a daily basis: restaurants, clothing stores, and car dealerships. Most of the businesses are also considered small or mid-sized.

With interest rates remaining at their highest level in nearly a quarter century, the squeeze is on businesses that rely heavily on borrowing to purchase equipment, replenish inventory, meet payroll and/or expand operations – not just on consumers. For small, private companies unable raise money through financial markets, access to credit is a do-or-die condition of doing business, yet a recent Federal Reserve Bank of Kansas City survey of 170 small businesses showed that “credit standards tightened for the tenth consecutive quarter and credit quality decreased.”

On top of that, consumer demand has also been underwhelming so far this summer, per ISM’s latest survey of businesses that sell any kind of service. In contrast with 2023, U.S. consumers don’t seem to be splurging this summer – although summertime is a crucial season for many kinds of service-providing businesses – spending cautiously instead.

This could be a troubling omen; it could also just be an instance of an unwinding of pandemic-related distortions in the economy. Government programs supported small businesses in the depths of the pandemic, so there were relatively fewer filings in 2021 and 2022 than usual. At the same time, new business applications took off in 2020 and have remained elevated ever since. Last year saw a record 5.5 million applications to start a new business (though that pace has slowed so far in 2024, per government statistics).

Inflation resumed a downward trend this spring after stagnating early in the year, which is a precursor for the Fed finally lowering borrowing costs sometime this year.

Fed officials expect to cut interest rates at least once this year, which wouldn’t provide huge immediate relief for all, but would be significant for small-caps, as it shows investors the path forward, with further possible cuts on the horizon, but perhaps most importantly, fewer reasons to worry about rates going up.” CNN