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Saturday 27 July 2024

Morning Brief: Bullish years often have rough patches

Saturday, Jul 27

👋 Good morning! Here are five key stories for the weekend and our Chart of the Week.

5 key stories for the weekend

📉 Ending a rough week on a high: The S&P 500 clawed back some of its losses Friday but still finished the week around 1.5% down. The Nasdaq finished 3.2% down. Meanwhile, the small-cap Russell 2000 finished the week over 3.1 % up, underlining the current rotation away from tech.

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🏷️ Inflation keeps September in focus: Helping that rotation toward interest rate-sensitive small caps were Friday's inflation numbers. The calm (but expected) Personal Consumption Expenditures (PCE) reading for June didn't change any narratives Friday, with the core figure that strips out food and energy coming in as expected at 2.6% compared to a year ago. The slowest rise in inflation since March 2021, June's data should give the Fed an open door to cut interest rates at the September meeting.

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⚠️ Lessons from the outage: The CrowdStrike outage will be quickly forgotten as the news cycles layer over the IT disaster. But the outage revealed the fragility of our connected world that shouldn't simply be swept under the rug. If an accidental minor software update became a single point of failure, what might that portend? CrowdStrike is doubtless working on its end. But perhaps so should everybody else.

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🏡 Unsold homes in the South: An enormous number of houses are for sale in the southern US, a sharp contrast to the tight housing market in most of the rest of the country. There's a glut of new homes that may entice homebuyers and push down prices, though not nearly as much as they've risen. On top of that, however, there may be some other factors keeping more houses on the market.

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🏀 NBA streaming drama: The NBA's off-court drama got more intense Friday after Warner Bros. Discovery sued the NBA over its "unjustified rejection" after it said it had matched Amazon and Comcast's offer. WBD has been a partner of the league since 1989. The NBA, however, said that the offer was not matched.

3 conversations we're still thinking about

🌯 Chipotle's CFO Jack Hartung on food cost and consumer pushback.

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⚡️ GM CFO Paul Jacobson on the current state of EVs — and politics.

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📈 BMO Capital Markets chief investment strategist Brian Belski on how investors will be kicking themselves for not buying small caps.

Chart of the Week

Our Chart of the Day Friday showed how a big, bullish year might still have a painful setback. In the second half of a bull market year, the average deepest setback is around 9% — about twice what we've seen so far.

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And as our Josh Schafer wrote, it might be an indication that the current unpleasantness may continue, despite Friday's gains.

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These questions will be answered throughout earnings season as we get more data points from companies on the recent past and their best guesses for the future. And the direction will likely be cast, as it has been for the past couple of years, by the fortunes of Big Tech.

And in our Chart of the Week, submitted to our Chartbook series by BMO's Brian Belski, we see another confirmation of exactly how normal it is to have these moments of stress in a big year. Long before the past couple of weeks Brian was sounding this drum — this happens frequently.

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Needless to say, even with this week, Brian is still bullish.

Morning Brief is written and edited by Ethan Wolff-Mann. For the web version, click here. Follow all the action throughout the day on Yahoo Finance and on the Yahoo Finance app.