The first presidential election debate on Thursday night sparked more theatrics than substantive discussion on the economy. Despite risks such as inflation and slowing growth, the stock market, often viewed as a gauge of economic well-being, continues to surge. The S&P 500, for instance, has soared approximately 15% since the beginning of the year, marking its strongest first half in an election year since 1976. However, whether this momentum will sustain itself remains uncertain, prompting investors to scrutinize the underlying pillars of this rally.
Historically, the S&P 500 tends to perform better in the second half of election years compared to non-election years. Yet, when the index has surged by 15% or more in the first half of the year, it has historically only continued its ascent in the second half 54% of the time, with an average increase of just 2.5%. This statistic suggests caution, especially for sectors that have outperformed significantly.
In 2024, this caution is particularly relevant for tech stocks like Nvidia, Super Micro Computer, and Micron Technology, which have benefitted from the AI boom. Micron’s recent quarterly results, despite beating earnings expectations and showing robust demand in critical areas, disappointed investors accustomed to blockbuster numbers. This reaction not only impacted Micron but also weighed on Nvidia and other hardware-focused firms.
The divergence between hardware and software sectors is also notable. Hardware companies like Micron have outshone their software counterparts this year, largely due to lesser capital expenditures needed to meet AI demand. However, Micron’s announcement that it will increase spending on chip production signals potential challenges ahead, which could affect Nvidia and suggest a rebalancing of performance between hardware and software sectors.
Meanwhile, outside of tech, retail pharmacy chain Walgreens Boots Alliance faced challenges, reporting weaker-than-expected earnings due to subdued consumer spending. Walgreens plans to shutter a significant number of underperforming stores as part of its strategy to realign operations amidst evolving consumer behavior and economic pressures.
In legal news, the Supreme Court delivered a significant ruling limiting the Securities and Exchange Commission’s (SEC) ability to conduct securities-fraud cases in its administrative tribunals. This decision underscores ongoing efforts to redefine the scope of federal agency powers and their procedural limitations.
On a broader economic front, Nike’s recent financial outlook reflects concerns about softening consumer demand in North America and China. The company anticipates mid-single-digit revenue declines for fiscal 2025, attributing the downturn to muted consumer sentiment and strategic adjustments in product offerings.
In the housing market, falling mortgage rates offer potential relief for homebuyers, with rates reaching their lowest levels since early April. This development, coupled with increased inventory, may stimulate buyer interest despite recent declines in pending home sales.
Looking ahead, the economic landscape remains dynamic, influenced by geopolitical developments, consumer behavior shifts, and regulatory changes. Investors and businesses alike navigate these uncertainties while anticipating the next catalysts that could shape market outcomes in the months ahead.