Everything to Know about Macro and Markets
Urgent Update: The attempted assassination of former president Donald Trump at a political rally on Saturday has introduced a massive unknown into the markets. How investors will react to the uncertainty is a guessing game at present, though our assumption is the situation should even out after a few shaky days.
Stocks ended the week with gains, with the Dow Jones Industrial Average (DJIA) taking the rally’s lead with a weekly increase of 1.6%. On Friday, major indexes strongly rebounded from their previous day’s slump. The blue-chip DJIA and the S&P 500 (SPX) hit record highs before giving back some gains later in the session. The Nasdaq Composite (NDAQ) finished the week with a small gain, while the large-cap tech benchmark Nasdaq-100 (NDX) ended slightly down for the week, having suffered a major sell-off on Thursday.
Powell Encourages Investors
Markets outside the tech leaders’ stocks were quiet in the first half of the week, awaiting the inflation data and the start of the second-quarter earnings season. The Magnificent Seven and a handful of other large technology shares rallied on positive news emanating from Taiwan Semiconductor (TSM), Apple (AAPL), and Tesla (TSLA).
Federal Reserve Chair Jerome Powell’s testimony before Congress further boosted investor sentiment on Wednesday, sparking an avalanche of rate-cut bets. Traders are now seeing increased odds of two interest rate decreases this year, with the first one arriving in September. The central bank’s head said that while labor market conditions remain strong, they have cooled “pretty significantly.” Powell also reiterated that the Fed doesn’t need to see inflation falling below 2% to begin easing policy, but rather steady progress towards this target to gain more confidence that rate cuts are justified.
Another Attempt at Sector Rotation
Thursday’s CPI report, which showed the first month-on-month decline in inflation in four years, was greeted with another investor attempt at sector rotation. Large tech shares sold off as investors took profits, rotating to small caps and sectors expected to profit from monetary policy easing, such as materials, utilities, and real estate. Although the rotation attempt was short-lived, with the technology shares returning to draw buyers on Friday, the continued disinflation trend and increased odds of an imminent rate cut, coupled with rich tech stocks’ valuations, are expected to lead to further broadening of stock gains in the coming months.
The wholesale inflation rose more than expected, with June PPI climbing to its highest since March 2023. However, markets took the report in stride, as it showed a slowdown in most components of the report that feed into the next PCE inflation data. In addition, earnings reports from the largest U.S. banks stole the markets’ attention. Last quarter’s results from JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) were mostly strong, still underwhelming heightened investor expectations. According to analysts, large-bank shares were “priced for perfection,” stumbling after the earnings releases revealed some weaker-than-expected details.
This week will be relatively light on economic data and speeches by central bankers, with the main market catalyst shifting to be the earnings season, going into high gear with multiple economically important firms scheduled to report.
Stocks That Made the News
¤ Wells Fargo (WFC) was the S&P 500’s worst performer on Friday, tumbling by over 6% after a net interest income miss and a warning about being unable to cut costs as fast as was projected due to higher-than-expected expenses.
¤ Bank of New York Mellon (BK) bucked the banking sector downturn, surging over 5% to score an all-time high, after the bank posted better-than-expected net interest income and raised its dividend.
¤ Meta Platforms (META) was a notable exception among the rebounding big tech stocks, falling for a second straight day on Friday. The Facebook parent was hit by profit-taking after it reached a record in the previous week, as well as by an analyst report that raised concerns about the company’s ad performance.
¤ Netflix (NFLX) saw its shares drop over 6% from their record high reached last week, with investors taking profits ahead of the earnings report scheduled for this week. While the streaming giant is expected to post another strong quarterly result, some analysts are concerned that the stock has become considerably overvalued.
¤ Costco (COST) was the worst performer among Consumer Staples last week. The warehouse club operator’s long-awaited membership fee increase underwhelmed in size, falling far behind annual inflation rates.
¤ Delta Air Lines (DAL) stock tumbled as the carrier missed profit estimates despite delivering a near-record revenue in Q2. Delta also produced a weaker-than-expected earnings guidance due to stronger competition and higher costs.
Upcoming Earnings and Dividend Announcements
This week, the Q2 2024 earnings season is going into high gear, with multiple newsworthy earnings releases scheduled for this week.
This week’s most notable earnings reports will be published by Goldman Sachs Group (GS), BlackRock (BLK), Bank of America (BAC), UnitedHealth (UNH), Morgan Stanley (MS), Johnson & Johnson (JNJ), ASML Holding (ASML), Netflix (NFLX), Taiwan Semiconductor Manufacturing (TSM), and American Express (AXP).
Ex-dividend dates are coming this week for AbbVie (ABBV), Abbott Laboratories (ABT), Hormel Foods (HRL), PNC Financial (PNC), EOG Resources (EOG), Procter & Gamble (PG), Colgate-Palmolive (CL), and other dividend-paying firms.
For more exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.
