Wall Street wrapped up a week marked by a shift from this year’s megacap winners to smaller names. U.S. stocks closed Friday trading down. The S&P 500 closed at 5,505.00, down 0.71%. The Nasdaq Composite saw a 0.81% decline, closing at 17,726.94. The Dow Jones Industrial Average dropped 377.49 points, or 0.93%, to reach 40,287.53.
Broad Market Dip
There was a broad dip on Friday, with the Russell 2000 falling by 0.63%. Despite this, the week’s main focus was on companies that were anticipated to gain more from prospective Federal Reserve interest rate reductions, particularly small caps.
Weekly Performance
The S&P 500 and Nasdaq fell 3.65% and 1.97%, respectively. This marked the biggest weekly losses in megacap since April. The tech-heavy Nasdaq also saw its six-week winning streak end. In contrast, the Russell 2000 small-cap index increased by 1.68%, and the Dow gained 0.72%.
Economic Indicators to Watch
A number of significant economic indicators are scheduled for release this coming week. The primary focus will be on Thursday’s preliminary gross domestic product (GDP) numbers for the second quarter. Many experts predict these will show an increase.
Personal Consumption Expenditures (PCE) Data
One of the Fed’s favorite measures of inflation, the Personal Consumption Expenditures (PCE) data, is scheduled for release on Friday. JPMorgan economists expect a modest acceleration from the 1.5% growth pace in 1Q to 2.0% last quarter.
Core PCE Inflation Report
The June core PCE inflation report, released on Friday, is predicted to show a 0.2% month-over-month increase in prices. This would maintain the 2.6% increase from the previous year.
Political Watch
Investors will be watching the presidential election very carefully. Joe Biden’s resignation from the contest has added a layer of uncertainty. Although U.S. Vice President Kamala Harris is considered the front-runner for the nomination, an open convention is now a possibility.
Tech Earnings Reports
This week, Alphabet and Tesla will release their profits. The tech-focused S&P 500 faces challenges as earnings season gets underway. This includes the rotation into small caps and possible selling pressure from trend followers on megacap.
Quarterly Results
Several large S&P 500 businesses are scheduled to release their most recent quarterly results this week. Given the elevated expectations, any disappointment could lead trend followers to liquidate their extended long positions, further pressuring the benchmark index.
Focus on Tech Giants
The focus will probably be on tech titans Alphabet Inc. and Tesla Inc., which both have reports on Tuesday. In the upcoming days, Visa, Chipotle, Coca-Cola, 3M, and Texas Instruments will also release their earnings.
Analysts’ Remarks
JPMorgan analysts suggest that the forecasts for Mag-7 EPS growth are still aggressive but will slow down a little. Positive year-over-year SPX ex Mag-7 earnings are anticipated for the first time in five quarters.
IT Sector Shifts
In the IT space, JPMorgan is restating their call from last month to shift from hardware/semis to software. This is due to decreased yields, geopolitical uncertainties, and semiconductors’ strong historical outperformance.
Market Predictions
UBS believes that the S&P 500 will end the year around 5,900, modestly higher than the current 5,505. They think that political unpredictability will be more than offset by the bright future for leading US tech companies.
Political Endorsements
Wells Fargo notes that President Biden has endorsed Vice President Harris as the nominee and withdrew from the presidential race due to his support continuing to erode. A minor “Trump Trade” return is possible, but the rest of the way is likely data-dependent.
Sector Performance
Lynx Equity Strategies believe that last week’s sell-off will reverse somewhat. The SOX has underperformed the SPX relative to its historical norm. The sector’s fate will be determined by the earnings reports, the majority of which won’t be available until next week.
Trade Policy Shifts
Triggering FDPR represents a significant shift in US trade policy toward allies. The Biden administration is unlikely to make significant changes to trade policy during the remainder of its term. Investor concerns about harsh changes to US policy on China exports are likely to subside.
Stock Market Trends
Yardeni Research suggests that since June’s lower-than-expected CPI persuaded investors to load up on interest-rate-sensitive stocks, investors have been pulling out of Tech and the Magnificent-7 since July 11. They believe the rate cut could be a one-time event in 2024, and the stock market was overbought and is currently going through a slight selloff.
In summary, the week saw significant shifts in the U.S. stock market, with megacap winners giving way to smaller names. Economic indicators, political developments, and earnings reports will shape the market’s direction in the coming days.
What caused the S&P 500 and Nasdaq to fall this week?
The S&P 500 and Nasdaq fell due to a broad market dip and a shift from megacap winners to smaller names.
What economic indicators are being watched this week?
The primary focus is on Thursday’s preliminary GDP numbers for the second quarter and the PCE data on Friday.
Why is the PCE data important?
The PCE data is one of the Fed’s favorite measures of inflation, providing insights into economic conditions.
What impact did Joe Biden’s resignation have on the market?
Biden’s resignation added uncertainty to the presidential race, affecting investor sentiment.
Which companies are releasing their earnings this week?
Alphabet, Tesla, Visa, Chipotle, Coca-Cola, 3M, and Texas Instruments are some of the key companies reporting earnings.
