Market Recap - Growth Concerns Overshadow Influential Earnings News

The stock market logged solid declines this week.

There were some winning sessions in the first half of the week, but growth concerns pushed to the fore during Thursday's session and sparked a strong sell‐off. The S&P 500 and Dow Jones Industrial Average each declined 2.1%, the Nasdaq Composite settled 3.4% lower than last Friday, and the Russell 2000 reversed its recent outperformance, dropping 6.7%.

The market learned Wednesday that the FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 5.25‐5.50%, as expected.

Fed Chair Powell's subsequent press conference was largely what the market expected to hear. He didn't pre‐commit the FOMC to cutting rates at the September meeting, although he suggested more than once that the discussion of a rate cut would be on the table if the Fed gets the data it hopes it will get.

There was a muted response to these developments on Wednesday, but Thursday's economic releases had the market feeling like the economy is headed for a deeper slowdown while the Fed remains on pause.

Weekly initial jobless claims ‐‐ a leading economic indicator ‐‐ increased to 249,000 (Briefing.com consensus 233,000) from 235,000 last week, reflecting some softening in the labor market that may weaken discretionary spending. The ISM Manufacturing Index showed weakening in the manufacturing sector, dropping further into contraction territory to 46.8% in July (Briefing.com consensus 48.5%) from 48.5% in June.

Friday's release of the July Employment Situation report seemed to corroborate that the labor market is weakening. Nonfarm payrolls increased by just 114,000 (Briefing.com consensus 170,000), the unemployment rate jumped to 4.3% from 4.1%, and average hourly earnings decelerated on a year‐over‐year basis to 3.6% from 3.8%. A labor market that softens more than anticipated could translate into lower spending, which would impact earnings growth.

Treasuries surged in terms of price and plunged in terms of yield. The 2‐yr note yield, which is most sensitive to changes in the fed funds rate, settled 52 basis points lower at 3.87%. The 10‐yr note yield settled 41 basis points lower at 3.79%.

Market participants also repriced rate cut expectations in response to the data. The CME Fed Watch Tool now shows a 71.5% probability of a 50‐basis points rate cut at the September FOMC meeting versus 11.5% a week ago.

Earnings news from mega cap names was largely overshadowed by the slowdown worries. Meta Platforms (META) and Apple (AAPL) received positive responses to their reports, settling 4.8% and 0.9% higher, respectively. Microsoft (MSFT) and Amazon.com (AMZN) slid 4.0% and 8.0%, respectively, in response to their reports.

  • S&P 500: +12.1% YTD

  • Nasdaq Composite:+11.8% YTD

  • S&P Midcap 400: +6.0% YTD

  • Dow Jones Industrial Average: +5.4% YTD

  • Russell 2000: +4.1% YTD

Market Recap - Mixed Week After Busy Earnings and Economic Calendar

The stock market had a mixed showing this week.

The S&P 500 (-0.8%) and Nasdaq Composite (-2.1%) logged declines since last Friday while the Russell continued its recent action, jumping 3.5% this week. The Dow Jones Industrial Average also higher, up 0.8%.

The underperformance of the S&P 500 and Nasdaq Composite was due to ongoing profit-taking activity in the mega cap and semiconductor spaces. The PHLX Semiconductor Index (SOX) declined 3.1% this week.

This price action followed earnings results from Alphabet (GOOG) and Tesla (TSLA) that did not live up to high expectations. GOOG logged a 6.0% loss and TSLA fell 8.1%.

Dow component Visa (V) was another standout this week after stirring concerns about economic growth prospects following an acknowledgment that lower-income consumers have slowed their spending. Visa shares ultimately closed flat on the week.

Only four sectors logged a decline -- communication services (-3.8%), information technology (-2.5%), and consumer discretionary (-2.3%) -- due to their mega cap components. Meanwhile, four sectors gained at least 1.0%. The materials (+1.4%) and utilities (+1.5%) sectors led the pack.

A drop in Treasury yields helped the positive bias this week. The 10-yr note yield fell four basis points to 4.20% and the 2-yr note yield dropped 12 basis points to 4.39%. This price action following a slate of economic releases this week, including the June Personal Income and Spending Report, which showed some fairly steady behavior in the PCE and core-PCE price indexes on a year-over-year basis and supported the market's belief that the Fed will cut rates in September.

The market was also reacting to news that President Biden exited the 2024 presidential race and endorsed Kamala Harris for the candidacy. The news garnered muted responses in the equity and bond markets. The 10-yr note yield settled two basis points higher at 4.26% and the 2-yr note yield settled one basis point higher at 4.52%.

  • Nasdaq Composite:+15.6% YTD

  • S&P 500: +14.5% YTD

  • Russell 2000: +11.5% YTD

  • S&P Midcap 400: +10.6% YTD

  • Dow Jones Industrial Average: +7.7% YTD

Market Recap - CONSOLIDATION INTEREST TAKES ROOT

It Was A Losing Week For The Stock Market, But It Wasn't Necessarily A Losing Week For The Broader Market.

The connection is that the losses were not broad based. Rather, they were concentrated among the mega-cap stocks and many of the growth stocks, namely the semiconductor stocks, that had been previously favored by the momentum crowd.

The CRSP Mega Cap Growth Index declined this week while the Philadelphia Semiconductor Index dropped 8.8%. The former was a byproduct of consolidation activity following an extended period of outperformance. The latter was also a byproduct of consolidation interest; however, selling activity was catalyzed by a report that the Biden Administration is considering tightening export restrictions to China, and former President Trump saying Taiwan should be paying the U.S. to defend it while bemoaning how much semiconductor production occurs in Taiwan versus the U.S.

Mr. Trump's remarks touched a nerve since the market entered the week on speculation that he is likely to win the presidential election in November with his popularity boosted after a failed assassination attempt over the weekend at a Pennsylvania rally.

That speculation also fostered a contention that a Trump Administration would be more market friendly given former President Trump's push for deregulation and lower corporate tax rates. Those aims were spelled out at the Republican National Convention this week, which also featured the nomination of Ohio Senator J.D. Vance for Vice President.

That upbeat view contributed to an ongoing rotation trade that boosted the small-cap stocks, the cyclical stocks, and the value stocks at the start of the week, mostly at the expense of the mega-cap stocks and growth stocks.

At its high for the week, the Russell 2000 was up 6.0%, but it would retreat in the latter half of the week along with most stocks in a consolidation trade. The Russell 2000 finished the week, which also featured the outperformance of the regional bank stocks, with a 1.9% gain.

An expectation that the Fed will be lowering rates soon spurred the continued buying interest in the bank stocks, as well as the homebuilders which are seen as beneficiaries of lower rates through the channel of lower mortgage rates.

This week's earnings news stayed true to form and was mostly better than expected, highlighted by pleasing news from Bank of America (BAC), UnitedHealth (UNH), Goldman Sachs (GS), Taiwan Semiconductor Manufacturing Company (TSM), Johnson & Johnson (JNJ), and SLB (SLB).

The market didn't get much mileage out of the reports, though, since many stocks had run up sharply in the weeks and months leading up to their results, including Netflix (NFLX) whose report was overshadowed somewhat in Friday's trade by a global IT outage that was triggered by a flaw in a technical update CrowdStrike was trying to implement and which infiltrated Microsoft's (MSFT) operating system.

The worst-performing sectors this week were information technology (-5.1%), communication services (-2.9%), and consumer discretionary (-2.7%), all of which house mega-cap components.

The earnings reporting activity will gather steam in the coming week as the Q2 reporting period kicks into a higher gear. Those reports will run side-by-side with an economic calendar that features the Existing Home Sales and New Home Sales reports for June, and the Personal Income and Spending report for June, which will include the Fed's preferred inflation gauge in the core-PCE Price Index.

  • Nasdaq Composite: +18.1% YTD

  • S&P 500: +15.4% YTD

  • S&P Midcap 400: +8.4% YTD

  • Russell 2000: +7.8% YTD

  • Dow Jones Industrial Average: +7.0% YTD

Market Recap - BUSY WEEK BRINGS SOLID GAINS

The Stock Market Ultimately Logged Gains, But There Wasn't A Lot Of Conviction In The First Half Of The Week In Front Of Market-Moving Events.

The June Consumer Price Index and Producer Price Index were released Thursday and Friday, respectively.

Total CPI deflated 0.1% month-over-month, slowing the pace of growth to 3.0% on a year-over-year basis from 3.3% in May. Core-CPI, which excludes food and energy, decelerated to 3.3% on a year-over-year basis from 3.4%.

Total PPI was up 0.2% versus an expected 0.1% increase and Core PPI was up 0.4% versus an expected 0.1% increase.

The CPI report overshadowed the PPI report and fueled optimism about the path of inflation and Fed policy. The fed funds futures market is pricing in a 94.4% probability of a rate cut at the September FOMC meeting, up from 77.7% one week ago.

Treasury yields sank in response to the data, acting as support for equities. The 10-yr note yield fell eight basis points to 4.19% and the 2-yr note yield declined 14 basis points to 4.46%.

This week's calendar also featured the start of earnings season when JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) reported results ahead of Friday's open. Their quarterly results garnered negative responses despite beating earnings estimates.

Fed Chair Powell's semiannual monetary policy testimony before the Senate Banking Committee and the House Financial Services Committee did not garner a big response from bond or equity markets. There were no surprises in his remarks, which featured an acknowledgement that the "likely next direction" of policy will be a loosening of policy, indicating a rate hike is not likely.

Losses in the mega cap space limited gains for the S&P 500 and Nasdaq Composite this week. Money was rotating away from mega caps due to profit taking activity and moving into areas of the market that have trailed so far this year.

The Russell 2000 jumped 6.0% this week and the S&P Mid Cap 400 gained 4.3%. The top performing S&P 500 sectors included the rate-sensitive real estate (+4.4%) and utilities (+3.9%) sectors, along with the materials (+3.0%) and industrial (+2.4%) sector.

  • Nasdaq Composite: +22.6% YTD

  • S&P 500: +17.7% YTD

  • S&P Midcap 400: +8.6% YTD

  • Dow Jones Industrial Average: +6.1% YTD

  • Russell 2000: +6.0% YTD

Market Recap - Record Closing Highs Amid Falling Rates and Mixed Data

Record Closing Highs Amid Falling Rates and Mixed Data

The S&P 500 (+2.0%) and Nasdaq Composite (+3.5%) set fresh all-time highs on this holiday-shortened week.

Gains in the mega cap space had an outsized impact on index gains while the equal-weighted S&P 500 closed with a 0.4% decline this week.

Tesla (TSLA) was a top performer from the mega cap space, jumping 27% on better-than expected Q2 delivery numbers.

The price action in mega cap names led the S&P 500 communication services (+3.9%), consumer discretionary (+3.8%), and information technology (+3.9%) sectors to close at the top of the leaderboard among the 11 sectors.

The S&P 500 (+2.0%) and Nasdaq Composite (+3.5%) set fresh all-time highs on this holiday-shortened week. Week Ending 7/5/2024 Growth worries were part of the story this week after the ISM Manufacturing Index for June reflected a contraction in activity (i.e. sub-50 reading) and the Employment Situation Report for June reflected a softening in labor market conditions. The main concern for stock market participants is how a slowdown in economic activity and consumer spending may impact earnings growth.

Still, the jobs report went the market’s way in terms of rate cuts and coincided with a recalibration of rate cut expectations. The likelihood of a 25-basis points rate cut at the September FOMC meeting moved to 76.3% on Friday from 64.1% one week ago, according to the CME FedWatch Tool.

Treasury yields fell this week in response to the data. The 10-yr note yield slid seven basis points to 4.27% and the 2-yr note yield declined 12 basis points to 4.60%. The drop in rates did not translate into broad support for equities due to the emerging worries about an economic slowdown and softening labor market that may lower earnings growth.

• Nasdaq Composite: +22.3% YTD • S&P 500: +16.7% YTD
• Dow Jones Industrial Average: +4.5% YTD
• S&P Midcap 400: +4.1% YTD
• Russell 2000: -0.02% YTD

Market Recap - Some Good And Some Bad

The Week That Just Concluded Had Its Share Of Surprises. Some Were Good And Some Were Bad.

The good included the following:

  • The 2-yr, 5-yr, and 7-yr Treasury note auctions

  • Carnival's earnings report

  • FedEx surging after its earnings report

  • Amazon.com eclipsing a $2 trillion market capitalization

  • All 31 large banks passing the Fed's annual stress test

  • A Personal income and Spending report for May that hit the right soft landing notes, which included gains in personal income and personal spending to go along with a moderation in the PCE Price indexes

The bad included:

  • A lack of broad-based participation. The equal-weighted S&P 500 declined 0.8% for the week.

  • A massive 20% decline in Dow component Nike after it issued a greatly disappointing FY25 sales outlook.

  • Reports of tension rising between Israel and Hezbollah.

  • Micron losing nearly 8% after failing to live up to investors' high expectations with its guidance.

  • Walgreens Boots Alliance missing earnings expectations, cutting its FY24 guidance, and announcing plans to close a significant number of underperforming stores

  • Continuing jobless claims hitting their highest level since November 2021.

  • New home sales sliding 11.3% month-over-month in May to a seasonally adjusted annual rate of 619,000 units.

The presidential debate, we suppose, could fit in either category depending on how one looked at things. We'll let others call that shot, but it's not a stretch to say that it injected a new level of uncertainty into the presidential election.

Market participants took the news as it came, but refrained from showing any strong conviction outside of individual stock moves. All in all, it was a mixed showing at the index level.

The market-cap weighted S&P 500 dipped 0.1% for the week, the Nasdaq Composite increased 0.2%, the S&P Midcap 400 dropped 0.1%, and the Russell 2000 gained 1.3%. The price-weighted Dow Jones Industrial Average was down fractionally for the week.

  • Nasdaq Composite: +18.1% YTD

  • S&P 500: +14.5% YTD

  • S&P 400: +5.3% YTD

  • Dow Jones Industrial Average: +3.8% YTD

  • Russell 2000: +1.0% YTD

Market Recap - GAINS BROADEN OUT ON HOLIDAY-SHORTENED WEEK

The Major Indices Logged Gains On This Holiday Shortened Week. The S&P 500 Traded Past The 5,500 Level For The First Time After Reaching Record Highs On Light Volume Through Most Of The Week.

Bond and equity markets were closed Wednesday for Juneteenth. Friday's session featured heavy volume due to the quadruple witching options expiration.

Gains were relatively broad based this week. The equal-weighted 500 outperformed the market-cap weighted S&P 500, gaining 1.2% versus a 0.6% gain in the index. Only three of the S&P 500 sectors registered declines on the week.

The real estate (-0.3%), information technology (-0.7%), and utilities (-0.8%) sectors were alone in the red by the close. The consumer discretionary sector was the top performer this week, jumping 2.5%, followed by the energy (+1.9%), financials (+1.7%), and industrials (+1.9%).

Recent weeks have featured the outperformance of mega cap names, but this week features a broadening out of buying activity to other parts of the market. Some top-weighted names actually logged solid declines on the week, driven by a lingering sense for consolidation. NVIDIA (NVDA) is down 4.0% compared to last week and Apple (AAPL) fell 2.4% this week.

Treasury yields moved higher, but didn't deter buyers in the stock market. The 2-yr note yield settled up five basis points for the week at 4.73%. The 10-yr note yield settled up five basis points this week to 4.26%.

  • S&P 500: +0.6% for the week / +14.6% YTD

  • Nasdaq Composite: UNCH for the week / +17.8% YTD

  • S&P Midcap 400: +1.3% for the week / +5.4% YTD

  • Dow Jones Industrial Average: +1.5% for the week / +3.9% YTD

  • Russell 2000: +0.8% for the week / -0.3% YTD

Market Recap - MEGA CAPS LEAD INDEX GAINS, BROADER MARKET TAKES A BREATHER

The S&P 500 And Nasdaq Composite Hit Fresh Record Highs This Week And Closed 1.6% And 3.2% Higher, Respectively.

Other major indices logged declines on the week, though. The Dow Jones Industrial Average declined 0.5% and the Russell 2000 fell 1.0%.

Gains in the mega cap space played an integral role in index-level gains for the S&P 500 and Nasdaq. The equal-weighted S&P 500 slid 0.5% this week.

Apple was an influential winner from the space, jumping 7.9% and hitting record highs after introducing "Apple Intelligence," the personal intelligence system for iPhone, iPad, and Mac, at its Worldwide Developers Conference. 

Broadcom, another top performing mega cap, surged 23.4% after a better-than-expected earnings report, outlook, and a 10-for-1 stock split announcement.

Another notable technology company -- Adobe (ADBE) -- delivered pleasing earnings results and guidance, gaining 12.9% this week.

These three names helped propel the S&P 500 information technology sector to a 6.4% gain. The next best performing sector was real estate, gaining 1.2%. On the flip side, the energy (-2.3%) and financial (-2.0%) sectors logged the biggest declines.

The underlying downside bias that left the equal-weighted S&P 500 lower on the week was driven by some normal consolidation efforts following a solid run in many stocks. Meanwhile, mega caps were reacting to the aforementioned corporate news, along with a solid drop in market rates.

The 10-yr note yield declined 22 basis points this week and the 2-yr note yield declined 20 basis points to 4.69%. This was in response to this week's slate of bond auctions, including a soft $58 billion 3-yr note sale, a strong $39 billion 10-yr note sale, and a solid $22 billion 30-yr bond reopening.

The activity in Treasuries was also in response to pleasing inflation data. The May Consumer Price Index reflected some welcome disinflation on a year-over-year basis in total CPI (actual +3.3%; prior +3.4%) and core CPI (actual +3.4%; prior +3.6%) and the May Producer Price Index showed a 0.2% month-over-month decline in total PPI while core PPI was unchanged from the prior month. 

The market was also reacting to the latest move by the Fed. The FOMC left the target range for the fed funds rate unchanged at 5.25-5.50%, as expected. The vote was unanimous, as expected. The directive reiterated that, "The Committee does not expect it will be appropriate to reduce the target range until it has greater confidence that inflation is moving sustainably toward 2 percent," as expected.

If there was a surprise, it would be the Summary of Economic Projections (SEP), which showed a median estimate of only one rate cut this year versus three at the time of the March projections. Also, Fed Chair Powell's press conference featured a Fed Chair who was non-committal about the policy path.

Rate cut expectations moved up as a result of the aforementioned events. The fed funds futures market is pricing in a 70.2% probability of a 25 basis points rate cut at the September FOMC meeting, up from 50.5% one week ago, according to the CME FedWatch Tool. 

  • S&P 500: +1.6% for the week / +13.9% YTD

  • Nasdaq Composite: +3.2% for the week / +17.8% YTD

  • S&P Midcap 400: -0.9% for the week / +4.1% YTD

  • Dow Jones Industrial Average: -0.5% for the week / +2.4% YTD

  • Russell 2000: -1.0% for the week / -1.0% YTD

Market Recap - MEGA CAPS LEAD S&P 500, NASDAQ TO FRESH ALL-TIME HIGHS

The Major Indices Logged Gains This Week Largely Thanks To Mega Cap Stocks Outperforming Their Smaller Peers.

Still, the broader market showed nice resilience to selling efforts. The equal-weighted S&P 500 declined 0.7%  versus a 1.3% gain in the market-cap weighted index. The S&P 500 and Nasdaq Composite each logged a fresh all-time high this week.

NVIDIA was a standout from the spaces, topping a $3 trillion market value on a closing basis for the first time ever this week.

The strength in semiconductor stocks and mega caps boosted the S&P 500 information technology (+3.8%), consumer discretionary (+1.5%), and communication services (+1.7%) sectors to solid gains this week. Meanwhile, the utilities (-3.9%) and energy (-3.5%) sectors logged the largest declines.

Concerns about economic growth kept the broader market in check in response to this week's economic data. The ISM Manufacturing Index for May reflected a faster pace of contraction than the market expected, job openings decreased in April compared to March, and the May Employment Situation Report showed higher than expected earnings growth.

Treasury yields settled lower in response to the data and in response to the first rate cut by the ECB since September 2019. The 10-yr note yield settled eight basis points lower this week to 4.43% and the 2-yr note yield declined two basis points to 4.87%.

  • S&P 500: +1.3% for the week /+12.1% YTD

  • Nasdaq Composite: +2.4% for the week /+14.1% YTD

  • S&P Midcap 400: -2.1% for the week /+5.0% YTD

  • Dow Jones Industrial Average: +0.3% for the week / +2.9% YTD

  • Russell 2000: -2.1% for the week / UNCH YTD

Market Recap - WINNING MONTH ENDS WITH DOWNBEAT WEEK

The Stock Market Closed This Holiday-Shortened Week With Losses, But Closed This Month With Solid Gains.

Mega cap stocks had an outsized impact on index performance through the month, especially NVIDIA, which jumped 26.9% in May. 

The equal-weighted S&P 500 gained 2.8% this month, versus a 4.8% gain in the market-cap weighted S&P 500. This week, however, the index logged a 0.5% decline. 

The downside bias this week was driven by some normal consolidation activity after the big run this month. 

Market participants had a slate of earnings news to get through this week, including from retailers like Best Buy, Foot Locker, Kohl's, and Dollar General. Dow component Salesforce was a losing standout following disappointing quarterly results, leading CRM to close 13.9% lower than last Friday. 

In other corporate news, ConocoPhillips will acquire Marathon Oil in an all-stock transaction.

The market also received a mixed batch of economic reports, highlighted by Friday's release of the April Personal Income and Spending report. The key takeaway from the report is that the year-over-year PCE inflation rates did not worsen; however, they did not improve either, so it seems unlikely that the Fed would find any new confidence in this report that inflation is moving sustainably toward its 2% target.

Treasuries settled mixed this week in response to the data and in response to some poorly received Treasury sales. This week's $69 billion 2-yr note, $70 billion 5-yr note, and $44 billion 7-yr note sales met weak demand. 

The 10-yr note yield rose five basis points this week to 4.51% and the 2-yr note yield declined six basis points to 4.89%. 

  • S&P 500: -0.5% for the week / +4.8% for the month /+10.6% YTD

  • Nasdaq Composite: -1.1% for the week / +6.9% for the month /+11.5% YTD

  • S&P Midcap 400: +0.2% for the week / +4.3% for the month /+7.2% YTD

  • Dow Jones Industrial Average: -2.3% for the week / +2.3% for the month /+2.6% YTD

  • Russell 2000: UNCH for the week / +4.9% for the month / +2.1% YTD