Volatility returned to global equity indices last week amid a continued rotation in market leadership towards small-cap and value shares. The S&P 500 declined -1.97% in local currency, a fall that was led by Nasdaq listed technology stocks, whilst in contrast the US smaller company Russell 2000 index climbed 1.69% during the week. 

A major driver in the underperformance of growth stocks last week was a sharp decline in semiconductor stocks. This followed news that the Biden administration had told allies it was considering export tariffs if companies continued providing China with access to advanced semiconductor technology. Further remarks from Republican nominee Donald Trump that Taiwan should pay the US for its defence deepened selling in microchip stocks. Taiwan Semiconductor Manufacturing, Broadcom, and Nvidia fell sharply. The week also saw widespread disruption around the globe to computer systems on Friday due to an update error at CrowdStrike, a cyber security provider supplying many Microsoft operating systems. The issue caused disruption across multiple industries but ultimately had limited impact on trading bar some initial volatility. 

US election polls showed an increasing likelihood of a Republican sweep in November and the prospect of lighter banking regulation seemed to provide a boost to the value-oriented financials. Friday morning, it was widely reported that Biden’s team had started discussing his plan to exit the presidential race which subsequently came to fruition over the weekend. Meanwhile, on the first day of the Republican National Convention, former President Trump chose Ohio Senator J.D. Vance as his vice-presidential running mate. 

Core US retail sales beat expectations. Headline sales were unchanged in June but they rose sharply after stripping out the volatile food, petrol, auto and building materials components. That measure rose 0.9% from May, prompting economists to raise their Q2 gross domestic product (GDP) forecasts.

Elsewhere, the European Central Bank (ECB) kept interest rates unchanged on Thursday and left the door open for a September cut, citing inflation measures that were either stable or had edged down in June though price pressures are still high. The market is pricing in an 85% chance of a cut at the September policy meeting.

Week Ahead

Source: Refinitiv Workspace, 22/07/24

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