The longest streak of resolve snapped yesterday, the first 2.0% plus decline for the S&P 500 since 2007.

Unlike a couple of weeks ago, the market slipped into ‘fear’ when a similar move reflected anxiety. This move is all about ‘fear.’

Meltdown

That was quick. The headlines of market melt-up dominated stock market headlines for most of July, but today was a classic meltdown, as there were few places to escape the heat.

The biggest names suffered the biggest losses.

It was brutal.

Market Breadth

As one might imagine, market breadth was ugly. Decliners swarmed advancers, while down volume was more than three times on the New York Stock Exchange (NYSE) and a billion more shares on the NASDAQ Composite.

Market Breadth	NYSE	NASDAQ
Advancers	494	1,005
Decliners	2,314	3,191
New Highs	111	167
New Lows	28	116
Up Volume	885.01 million	2.80 billion
Down Volume	3.03 billion	3.91 billion

Small-Caps

Small-caps held up for half the session, then began to stumble hard, but finished better than large-cap growth. Large-cap value was the safe haven.

They Want Debt

The five-year bond auction could have supported the stock market, except when issued was 4.111%, while the high yield was 4.121%. 

• Direct (domestic) 18.78% six-month average 17.9%
• Indirect (international) 67.25% six-month average 65.8%

The issue with short-duration debt is it costs the government more money. Long duration remains the big test, but there will be limited issuance in the election.

The other issue is how much government spending continues to stoke inflation.

The 5-Year U.S. Treasury Yield edged higher.

Thoughts on the Sell-Off

There is a good argument that mega caps were priced for (near-term) perfection, hence the selling of Google (GOOGL) despite impressive financial achievements in the last three months.

But there is something else going on.

When the market gets wobbly, and there are margin calls or general panic, people tend to close their biggest winners.  That happened with Bernie Madoff, whose (fake) track record was so astonishing that his investors had nowhere to turn when they needed cash.

The “Mag Seven” rally isn’t over, but it will probably become more selective.

Today’s Session

Equity futures are mostly unchanged, but not freefalling either.

Second quarter GDP came in better than consensus, but the devil is in the details (which always makes me wonder about analysts that offer up lame guesses).

There is a smoke and mirrors element to the report for sure.  Most times the GDP report is ineffectual with the market because it’s a rear-view mirror read but there are nuggets and trends worth mounting. 

Comments

Charles, this year seems a bit odd even for an election year. Taking the Fed-R reduction expectation off the table around when rates and how much will be cut over time. Are we back to the influence of not only quarterly earnings being inflated in the past, but also more to the uncertainty around what and how the politics around the election plays out? Terry Dowler on 7/25/2024 11:28:51 AM

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