Issues usually arise between August and October, and during these three months, the historical performance of the US stock market is relatively weak compared to other months. The S&P 500 index had the largest five-year average decline in September, at -4.23%.
According to the latest "Market Pulse" report from RBC Capital Markets, analysts believe that July is usually the strongest month for the performance of the S&P 500 index over the past 5 years, with an average increase of 4.26%. However, the historical performance of the US stock market during August to October is relatively weak compared to other months, and the average five-year decline of the S&P 500 index for September is the largest, at -4.23%.
The S&P 500 index just ended its best performing first two weeks of the year in July and is now entering the most challenging period in August, September, and October, during which the US stock market tends to be relatively weak.
This report also shows that after the top 10 market cap stocks in the S&P 500 index, including Microsoft (MSFT.US), Apple (AAPL.US), Nvidia (NVDA.US), Amazon (AMZN.US), Meta (META.US), Google A (GOOGL.US), Google C (GOOG.US), Berkshire Hathaway (BRK.A.US), Broadcom (AVGO.US), and Eli Lilly (LLY.US), recently hit new highs, their stock prices have been stagnant.
The concentration of US large-cap stocks is also much higher than the historical high point after the epidemic. Since the end of June, apart from the price performance of two technology giants, Tesla (TSLA.US) and Apple, which are included in the magnificent seven, others have greatly underperformed the S&P 500 index.
In the third quarter of the S&P 500 index, real estate (corresponding to the US ETF industry XLRE), finance (XLF), and materials (XLB) are leading sectors, whereas communication (XLC) and technology (XLK) are the worst performing sectors.
Lori Calvasina, global equity strategy director at RBC Capital Markets, wrote, "Overall, the growth sector has slowed slightly since July, while the value sector has continued to be active."
In terms of the major sectors of US small-cap stocks, telecommunications, utilities, and finance are the best performing sectors so far this quarter.
In the Russell 2000 index, the overall EPS and sales of this index in the second quarter exceeded market expectations and the first quarter, with 74% of the component companies' EPS and 61% of the component companies' sales exceeding market expectations. This may continue to help small-cap stocks attract market capital and continue to outperform the S&P 500 index.
For the magnificent seven technology giants, as well as the S&P 500 index, which is heavily weighted by these giants, the biggest catalyst is undoubtedly the upcoming performances of these seven giants later this month, from the end of July to August. If their actual performance is extremely strong, it may initiate a new round of global capital inflows to these giants, which will continue to drive the S&P 500 index to hit new historical highs in the second half of the year.
As traders in the stock market become more confident in the Federal Reserve's first rate cut since the beginning of this cycle, recent US stocks, especially mid-small cap stocks, have risen sharply, except for the magnificent seven technology giants (Magnificent Seven), which have been driving stock prices up since 2023. Since July, the Russell 2000 index has risen by about 8%, while the S&P 500 index has risen by less than 2%, leading to debates about whether the trend of small-cap stocks outperforming the S&P 500 index can continue.
Currently, investors' biggest concern is whether the upward trajectory of the magnificent seven technology giants driven by artificial intelligence can continue.
"The biggest risk for the US stock market in the next six to eight weeks is whether we're prepared for disappointment, particularly in terms of disappointment with the performance brought by AI," said Ryan Grabinski, Managing Director of Investment Strategy at Strategas Research Partners.
The performance of the Magnificent 7 is likely to determine the profit growth trajectory of the broader S&P 500 index. According to John Butters, Senior Earnings Analyst at FactSet, four of the technology giants--Google, Nvidia, Meta, and Amazon--are expected to see second-quarter profits rise by 56.4% from the same period last year, compared to only a 5.7% increase in expected earnings for the other 496 companies.
When we combine these two sets of data, the overall eps of the s&p 500 index is expected to increase by 9.7% year-on-year. This will be the best quarter in terms of profit growth trajectory since Q4 2021.