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July 15, 2024
Last week saw a second consecutive downside surprise for the Consumer Price Index (CPI), spurring bond investors to fully price an interest rate cut at the September FOMC meeting. Equities saw the most substantial one-day leadership rotations since January 2021, with value (Russell 1000 Value Index) outpacing growth (Russell 1000 Growth) by 3.2% and small caps (Russell 2000) outperforming large (Russell 1000) by 4.2%.
While this leadership rotation was sparked by optimism regarding the start of the Fed’s cutting cycle, we see durability to this trade over the intermediate term. Over the past 18 months, the Magnificent Seven have had a significant earnings advantage over the S&P 493 and Russell 2000, but this lead is expected to narrow in 2024 and evaporate in 2025. Last week’s rotation could be a sign of things to come with value and small cap stocks seeing a more durable period of outperformance later this year or in 2025 on an improving relative fundamental outlook and reaccelerating economy.
Magnificent Seven Advantage Dissipating
Past performance is no guarantee of future results. Copyright © 2024 ClearBridge Investments. All opinions and data included in this commentary are as of the publication date and are subject to change. The opinions and views expressed herein are of the author and may differ from other portfolio managers or the firm as a whole, and are not intended to be a forecast of future events, a guarantee of future results or investment advice. This information should not be used as the sole basis to make any investment decision. The statistics have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Neither ClearBridge Investments, LLC nor its information providers are responsible for any damages or losses arising from any use of this information.
Performance source: Internal. Benchmark source: Standard & Poor's.
Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark of the relevant LSE Group companies and is/are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.
