News
What to know this week
The stock market recovery is at its most fragile in months ahead of Wall Street’s busiest week of the summer.
The S&P 500 ((GSPC) and Nasdaq Composite (^IXIC) recently had its worst single-day drops since 2022 as indexes struggled to recoup losses during a Friday rally. All three major averages closed the last full week of July lower. The S&P 500 fell more than 1%, while the Nasdaq dropped more than 2.3%. Meanwhile, the Dow Jones Industrial Average (DJI) rose by about 0.6%.
Next week, a Federal Reserve meeting, the July jobs report and earnings from Big Tech giants Apple (AAPL), Amazonas (AMZN), Microsoft (MSFT) and Meta (GOAL) will determine the direction of the markets for early August.
Updates on job openings, activity in the services and manufacturing sectors, and consumer confidence are also on the calendar.
A busy week of corporate earnings awaits, with 171 members of the S&P 500 expected to report quarterly results. AMD (OMG), Arm (ARM), Boeing (BA), McDonalds (MCD) and Starbucks (SBUX) will be among the companies that will stand out in the program.
A ‘sign’ from September
The Fed will announce its latest monetary policy decision next Wednesday. Markets widely expect the central bank to keep rates steady at its July meeting.
Recent economic updates have investors eyeing when the Fed’s first rate cut will occur. In June, the core Personal Consumption Expenditures (PCE) index, which strips out the cost of food and energy and is closely watched by the Federal Reserve, increased by 2.6% compared to the previous yearits smallest annual increase in more than three years. Separate data for the month showed a significant decrease in another inflation metric, the Consumer Price Index (CPI).
Meanwhile, the labor market has shown signs of cooling. The ratio of job openings to unemployed workers is back to pre-pandemic levels, and last month, the unemployment rate reached its highest level since November 2021.
That has led markets to price in the Fed’s first rate cut in September, and investors will be watching Jerome Powell’s press conference on Wednesday for any confirmation.
“The overall tone of the meeting, including Chair Powell’s press conference, should signal that a September rate cut is a reasonable baseline without a prior commitment to such action,” Deutsche Bank’s chief U.S. economist, Matthew Luzzetti, wrote in a note to clients.
Federal Reserve Chairman Jerome Powell leaves after holding a news conference following a two-day Federal Open Market Committee meeting on interest rate policy in Washington, U.S., May 1, 2024. (REUTERS/Kevin Lamarque) (REUTERS/Reuters)
Labor market view
Friday will bring new insight into monthly job additions as economists continue to debate whether the recent cooling of the labor market represents a normalization or a more significant deterioration.
The story continues
The July jobs report is expected to show that 175,000 nonfarm jobs were added to the U.S. economy, with unemployment holding steady at 4.1%, according to Bloomberg data. In June, the US economy added 206,000 jobs while the unemployment rate rose to 4.1%.
“The 180,000 payrolls increase we expect in July would still be a respectable gain, but it would underscore that directionally the labor market is deteriorating,” Wells Fargo’s economics team led by Jay Bryson wrote in a weekly note to clients. “By a range of measures, including the unemployment rate, the layoff rate, the level of temporary workers and small business hiring plans, the labor market is not just weaker than it was a year or two ago, but weaker relative to its pre-pandemic state.”
Given this scenario, the main focus will be on whether unemployment will remain stable or increase as has happened in the last three months.
Big Tech on deck
The recent stock market crash included a big sale in technology.
Since July 10, Roundhill’s Magnificent Seven ETF (MAGAZINES) — which tracks Nvidia (NVDA), Litter (AAPL), Alphabet (GOOGL, GOOG), Amazonas (AMZN), Goal (GOAL), Microsoft (MSFT) and Tesla (TSLA) — fell by about 12%.
Keith Lerner, Co-Chief Investment Officer, Truist recently told Yahoo Finance The pullback made sense given the surge in Big Tech stocks over the past year and how stretched positioning in many of the big tech stocks has become. That, combined with investors rotating into less-loved areas of the market that could benefit from the Fed cutting interest rates, has become the hallmark of market action over the past two weeks.
Earnings from four of the Magnificent Seven tech stocks — Amazon, Meta, Microsoft and Apple — could change that. But as Alphabet and Tesla’s post-earnings selloff last week showed, it’s been a tough season to impress investors with earnings.
“When we look at the earnings that we saw last week, I don’t think the earnings are bad,” Lerner said. “I don’t think the business, the fundamental trends of the business, are bad, but I think they weren’t good enough relative to these really high [expectations].”
And, returning to Lerner’s point, stocks that miss Wall Street estimates for earnings, revenue or both are seeing significantly worse price reactions on the next trading day than typically seen over the past five years, according to research by Julian Emanuel of Evercore ISI.
For now, Emanuel wrote in a note to clients: “Earnings remain a catalyst for volatility, not higher S&P 500 prices.”
Weekly calendar
Monday
Economic data: Dallas Fed Manufacturing Activity, July (-14.2 expected, -15.1 previous)
Earnings: McDonalds (MCD), Philips (PHG), Tilray (Truly)
Tuesday
Economic data: S&P CoreLogic 20-city NSA year-over-year, May (7.2% prev); Conference Board Consumer Confidence, July (99.7 expected, 100.4 prev) JOLTS Job Openings, June (8.14 million prev); Dallas Fed Services Activity, (-4.1 prev)
Earnings: Microsoft (MSFT), Advanced Micro Devices (OMG), SHOVEL (SHOVEL), Caesars Entertainment (RZC), Electronic Arts (AND THE), First Solar (FSLR Camera), JetBlue (JBLU), Marathon Petroleum Corporation (MPC), Merck (MRK), Pinterest (PINS), Pfizer (PFE), Procter & Gamble (PG), Starbucks (SBUX), SoFi (SOFI)
Wednesday
Economic data: MBA mortgage applications, week ending July 26 (-2.2% prior); ADP private payrolls, July (+168,000 expected, +150,000 prior); Minnesota and Chicago PMIs, July (44.0 expected, 47.4 prior); Employment Cost Index, Q2 (1.0% expected, 1.2% prior); Federal Reserve monetary policy decision (no change in interest rate expected)
Earnings: Metadata (GOAL), Altria (MO), Arm (ARM), Boeing (BA), Carvana (CVNA), To generate (GNRC), Human (BUZZING), The Kraft Heinz Company (KHC), Mastercard (BAD), Norwegian Cruise Lines (NCLH), Paycom (PAYMENT), Qualcomm (QCOM)
Thursday
Economic data: Challenger job cuts, year-over-year, July (+19.8% prev); Unit labor costs, Q2 (+4% prev); Nonfarm productivity, Q4 (+1.6% expected, +5.2% prev); Initial jobless claims, week ending July 27 (235,000 prev); S&P Global U.S. manufacturing PMI, end-July (49.5 prev); Construction spending, month-over-month, July (+0.2% expected, -0.1% prev); ISM manufacturing, July (49 expected, 48.5 prev); ISM prices paid, July (52.1 prev)
Earnings: Litter (AAPL), Amazonas (AMZN), Block (square), Reservas Holdings (BKNG), Canada Goose (GOOS), Coinbase (COIN), ConocoPhillips (POLICE OFFICER), Crocs (CRUISE), DraftKings (DKNG), Marathon Digital Holdings (MARA), Mobile (MBLY), Modern (mRNA), Roku (ROKU) SiriusXM (CRAB), Wayfair (W)
Friday
Economic calendar: Nonfarm payrolls, July (+175,000 expected, +206,000 prev); Unemployment rate, January (4.1% expected, 4.1% prev); Average hourly earnings, month over month, July (+0.3% expected, +0.3% prev); Average hourly earnings, year over year, July (+3.7% expected, +3.9% prev); Average weekly hours worked, July (34.4 expected, 34.3 prev); Labor force participation rate, July (62.6% prev); Factory orders, June (+0.5% expected, -0.5% prev); Durable goods orders, end-June (-6.6% prev)