Stock markets finished the volatile week mixed, with the S&P 500 (SPX) down by 0.8%, the Nasdaq Composite (NDAQ) losing 2.1%, and the large-cap tech benchmark Nasdaq-100 (NDX) falling by 2.6% for the week. The three major indexes were pulled downward by technology stocks, which had another wild week. Meanwhile, the Dow Jones Industrial Average (DJIA) – which has little exposure to tech stocks – scored a fourth consecutive weekly gain, rising by 0.8% as the rotation trade continued to draw investor inflows. Another rotation winner was the small-cap benchmark Russell 2000, which surged 3.5% over the week.
The past five trading days were quite dramatic, with many hard-to-digest twists pulling on market participants’ nerves. President Biden pulled out of the election race, endorsing Vice President Kamala Harris as the new Democratic nominee. With Harris’ odds at winning against Trump seen as higher than Biden’s, several “Trump trades” seemed to unwind.
Later in the week, the U.S. GDP print showed that economic growth accelerated in Q2 to an annualized rate of 2.8%, versus the outlook for 2% and Q1’s 1.4% rate, adding confidence that the economy remains robust. The underlying strength in consumer spending and business investment initially injected a dose of optimism into the markets, but these later returned to negativity as hotter-than-expected growth was seen as unsupportive of the September rate-cut outlook.
Friday’s inflation numbers helped stocks regain ground, as the Fed’s preferred gauge, the Core PCE, came in-line with expectations, featuring the smallest increase since March 2021. That brought some relief to investors, as it testifies that the Fed is succeeding in bringing down inflation without harming the economy.
Markets are now bracing for yet another eventful week, with investor attention divided between earnings reports from prominent large caps, incoming economic data, and the Federal Reserve’s policy meeting on July 30th and 31st. According to the economist consensus, policymakers are unlikely to cut rates at the coming meeting but are widely expected to convey a clear signal for a cut at the following meeting in September. Meanwhile, additional Magnificent Seven earnings reports are due this week, with their results expected to significantly affect the market’s direction.
Four Economic Events
Here are four economic events that could affect your portfolio this week. For a full listing of additional economic events, check out the TipRanks Economic Calendar.
» July’s Consumer Confidence Index – Tuesday, 07/30 – This report, released by the Conference Board, conveys the level of confidence that consumers have in economic activity. The level of confidence affects consumer spending, which contributes about 70% of the U.S. GDP. Therefore, this index is one of the most important leading indicators.
» July’s ISM Manufacturing PMI – Thursday, 08/01 – This report shows business conditions in the U.S. manufacturing sector and serves as a significant indicator of the overall economic conditions. PMIs are considered one of the most reliable leading indicators for assessing the state of the U.S. economy, helping analysts and economists anticipate changing economic trends.
» July’s Nonfarm Payrolls and Unemployment Rate – Friday, 08/02 – The Nonfarm Payrolls and Unemployment reports present the number of new jobs created during the previous month, along with the percentage of people actively seeking employment in the previous month. These reports are two of the most important economic indicators, as policymakers follow the shift in the number of positions since it is strongly associated with the overall health of the economy. One of the Federal Reserve’s mandates is full employment, and it considers labor market changes when determining its policy decisions.
» July’s Average Hourly Earnings – Friday, 08/02 – This data point serves as an important forward-looking indicator for overall price pressures stemming from wage inflation. The Federal Reserve pays close attention to labor costs and the tightness of the job market, as they are connected to its dual mandates of price and labor-market stability.
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