The Week That Was, The Week Ahead: Macro & Markets, August 18, 2024

Everything to Know about Macro and Markets

Stock markets locked in their best week since November, snapping a streak of four weeks of declines. The Dow Jones Industrial Average (DJIA) rose 2.94%, while the S&P 500 (SPX) jumped by 3.93%. Tech shares regained their lead, with the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) surging by 5.29% and 5.38%, respectively. The SPX’s seven-day advance of almost 7% was the strongest since October 2022, jolting the index within 2% of its mid-July record.

Tech Large Caps Back in the Lead

After the previous weeks’ sell-off, which was led by investor fears over the odds of a hard landing, new data reflecting consumer strength and falling inflation brought back the “Goldilocks” economic scenario, encouraging market participants. A resurgence of economic optimism emboldened “dip buyers,” specifically in the technology sphere. While all 11 S&P 500 sectors advanced in the past week, the IT sector surged over 7.5%, far outpacing all the others.

According to the Bank of America research, U.S. equity funds saw their 7^th consecutive week of inflows, attracting $5.5 billion in the week through August 14^th. Money flowed into large caps and out of small caps, with large technology shares back in focus after suffering a significant correction. On August 12^th, the Invesco S&P 500 Top 50 ETF (XLG), which holds the 50 largest U.S. companies by market cap, registered inflows of $210 million, its largest one-day influx ever.

The stampede into XLG shows investors still trust large-cap growth stocks, despite worries about excessive valuations and the timing of returns on AI investments. This goes to show that tech mega- and large-cap firms’ robust margins, cash flows, and returns on equity are attractive to investors during times of economic uncertainty. Wedbush strategists believe that technology stocks will see further significant gains, driven by AI momentum and other advancements.        

Powell’s Dilemma

This week will bring the release of the Federal Open Market Committee (FOMC) meeting minutes from the Fed’s last policy meeting three weeks ago. At that meeting, the Fed apparently became less worried about the inflation risks and more willing to cut interest rates as soon as September. Although these minutes are important, the headline event will be Fed Chair Jerome Powell’s speech at the annual Jackson Hole symposium.

The exclusive conference always attracts investor attention as it focuses on the most important global economic and financial issues. This time, it will be of utmost importance as Powell is expected to lay the foundation for the impending monetary policy easing, supported by the data revealing a softening job market and the deceleration of inflation toward the central bank’s target.

With the first interest-rate cut since March 2020 almost a certainty for September’s meeting, the main topic of discussion  on Wall Street is now the pace of the easing process. After the almost-panic earlier this month—when the markets were spooked by the prospect of an economic hard landing—many are still worried about a possible recession in case the easing is “too little, too late.”

At the same time, given the continuing resilience of the U.S. consumer, policymakers also face the risk of rekindling inflation with faster-than-necessary cuts. Thus, Powell’s remarks will be carefully scrutinized for any clues about the Fed Chair’s perspective on the economy, along with the expected pace of the policy shift. While the next PCE and jobs reports will be crucial for determining the extent of the central bank’s downward move, the markets now price in more than three 25-basis point cuts in 2024.  

Stocks That Made the News

¤ Chip producers were the best-performing S&P 500 group last week, with NVIDIA (NVDA), Micron (MU), Broadcom (AVGO), and AMD (AMD) clocking double-digit gains.

¤ Super Micro Computer (SMCI) rallied by over 23%, as AI-related stocks strongly rebounded from the sell-off of the previous four weeks.

¤ Texas Instruments (TXN) will receive $1.6 billion from the U.S. Commerce Department under the CHIPS and Science Act grants and $3 billion in loans to help fund the construction of three new semiconductor facilities on U.S. soil. TXN also expects to receive tax credits, as well as additional grants and loans for workforce development.

¤ Cisco Systems (CSCO) jumped by 8.4% after posting better-than-expected revenue and earnings and unveiling its restructuring plan, which includes a 7% workforce cut. The company said it needs to cut costs to invest in AI, cloud, and cybersecurity.

¤ Applied Materials (AMAT) rose by over 9% over the past week despite suffering a post-earnings dip. The company’s latest quarter revenues and earnings exceeded analyst estimates, but Q4 2024 guidance disappointed investors, coming in line with estimates.     

¤ Ulta Beauty (ULTA) surged over 17% on the week after Warren Buffett’s Berkshire Hathaway ($BRK.B) revealed it bought $266 million worth of shares of the beauty retailer.

¤ Walmart (WMT) jumped by more than 8%, registering its best week in more than four years after the largest U.S. retailer posted better-than-expected earnings and raised its full-year outlook.

¤ Starbucks (SBUX) shot up by over 24% after the coffee chain ousted its CEO, replacing him with Chipotle’s (CMG) CEO Brian Niccol, effective in September. Chipotle’s stock fell by almost 5% on the news.

Upcoming Earnings and Dividend Announcements

The Q2 2024 earnings season is drawing to a close, with about 93% of the S&P 500 companies having posted their quarterly results. However, several newsworthy earnings releases are still scheduled for this week.

Large retailers will take the center of the stage, as they can provide additional insights into consumer health. These include Target (TGT), Ross Stores (ROST), Lowe’s (LOW), TJX Companies (TJX), Macy’s (M), and Dollar Tree (DLTR).

Other notable companies reporting earnings include Palo Alto Networks (PANW), Analog Devices (ADI), Synopsys (SNPS), Snowflake (SNOW), Agilent (A), Intuit (INTU), Workday (WDAY), Medtronic (MDT), and Zoom Video Communications (ZM).

Ex-dividend dates are coming this week for United Parcel (UPS), Chevron (CVX), Southern Co (SO), Prudential Financial (PRU), Phillips 66 (PSX), Target (TGT), Equinix (EQIX), Microchip (MCHP), Cummins (CMI), and other dividend-paying firms.

For more exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.