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👋 Good morning! The Nasdaq had another rough day, falling 1.3% as the S&P 500 receded 0.5%. Meanwhile, the Russell 2000 continued the counterpoint we've been seeing, ticking up 0.4%. |
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| What we're watching | | 📆 Fed speaks: The Federal Reserve's July policy meeting will conclude Wednesday afternoon, with the central bank announcing its interest rate decision at 2 p.m. ET and a press conference with Fed Chair Jay Powell following at 2:30 p.m. ET. While no interest rate cuts are expected, the market still widely believes the table will be set for the September meeting. All that's left to find out is how much Powell telegraphs this move later today.
🤖 Microsoft disappoints: Microsoft's quarterly results Tuesday came in above estimates, but disappointing revenue in its cloud computing segments sent the stock lower in after-hours trading. A specific miss in "intelligent" cloud revenue didn't do anything to tamper the AI anxiety that's hit markets recently as investors consider whether Big Tech gains spiked too much too soon — this made three disappointments in a row after Alphabet and Tesla.
🍪 Chips are still hot: The hyperscalers may be (slightly) disappointing so far this earnings season, but AMD's quarterly results, released late Tuesday, showed chip demand is still strong as it not only beat on profit and revenue but issued stronger guidance for Q3. Intel will be the next of the big chipmakers to report on Thursday, with Nvidia coming in a month or so.
📉 Job openings dip: June's job openings showed a mild decline from May, another sign of a cooling — but, economists say, healthy — labor market. Deeper points in the JOLTS data also showed hiring and quitting decreasing, indicating a shared sentiment on both the employer and employee fronts on which way the economic wind is blowing.
🥽 Meta steps up to the plate: Facebook and Instagram's parent company, Meta, will report its quarterly results Wednesday after the bell, providing the next chapter in the AI monetization story after Microsoft's update. Investors will be on the lookout for how the firm's major AI spending might get offset by AI revenue, as well as a check on its ad business. Besides the "Magnificent" headliner earnings calendar, Wednesday features plenty of action, with Arm, Boeing, Carvana, Kraft Heinz, and Qualcomm of particular interest. |
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| Small caps have nearly caught up to the S&P 500 | | Today's Takeaway is by Jared Blikre, Markets Reporter.
Tech stocks led the S&P 500 lower Tuesday as the Nasdaq 100 closed at the lowest level since early June.
It was the fourth day the tech-heavy index lost 1.5% or more in the month of July, especially notable as there had not been any losses of that magnitude in the two prior months.
Ahead of June's Consumer Price Index reading on July 11, the Nasdaq 100 had been up 23% year to date. But after the CPI registered its first monthly drop in inflation since 2020, investors kicked off a stomach-churning rotation from large stocks into small.
Since then, the Nasdaq has surrendered half those gains, sending many investors into relative shock upon learning that the laggard Russell 2000 index has nearly caught up to the volatile index known as home to the largest tech players.
"[I] didn't have [the] Russell 2000 catching the Nasdaq 100 year-to-date on my bingo card to start this month. Getting close," wrote Jay Woods, chief global strategist at Freedom Capital Markets and former NYSE floor governor.
In the month of June alone, the Nasdaq outperformed the Russell 2000 by over 7 percentage points. Then, in July, the relationship violently inverted such that the Russell outperformed the Nasdaq by nearly 14 percentage points. It's the biggest month-to-month flip in leadership that we have data for, going back to 1988.
The narrative in the press followed the rotation as grave concerns over market concentration in the Magnificent Seven gave way to a small-cap miracle rally.
To be clear, sector rotation is a healthy feature of bull markets. When a leading group of stocks takes a back seat, other pockets of the market should take their place such that — at the index level — volatility is subdued. Extremes on either side average out.
But, given the speed and strength of the recent move, Wall Street is now assessing the damage to institutional portfolios.
According to Morgan Stanley's derivatives team, "volatility of the last two weeks started out being very rotational."
However, as the move gained steam, institutions began reining in leverage (borrowed money) and reducing directional bets on stocks. "What began as a de-grossing event has quickly turned more towards a shift in directional exposure to equities," the team continued.
All of this, and there's still a Fed meeting later today and a Meta quarterly report to close July. Buckle up. |
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 | | After the release of Tuesday's data, former US Secretary of Labor Seth Harris told Yahoo Finance the recent decline in quits indicates that workers are "feeling a little bit less secure that if they leave their jobs, they'll be able to find another job."
This is one of the early signs of "turbulence" in the labor market data, per Harris, and one of the reasons he believes the Federal Reserve should be cutting interest rates when it announces its next policy decision on Wednesday.
A cut isn't expected, but what Fed Chair Jerome Powell potentially says about quits or other data showing softness in the labor market will be a key takeaway from Wednesday's press conference.
— Josh Schafer, Markets Reporter |
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| Earnings and economic calendar | | Wednesday
- Economic data: MBA Mortgage Applications, week ended July 26 (-2.2% prior); ADP private payrolls, July (+168,000 expected, +150,000 prior); Chicago PMI, July (44.0 expected, 47.4 prior); Employment cost index, second quarter (1.0% expected, 1.2% prior); Federal Reserve monetary policy decision (no interest rate change expected)
- Earnings: Meta (META), Altria (MO), Arm (ARM), Boeing (BA), Carvana (CVNA), Generac (GNRC), Humana (HUM), The Kraft Heinz Company (KHC), Mastercard (MA), Norwegian Cruise Lines (NCLH), Paycom (PAYC), Qualcomm (QCOM)
Thursday
- Economic data: Challenger jobs cuts, year-over-year, July, (+19.8% prior); Unit labor costs, second quarter (+4% prior); Nonfarm productivity, fourth quarter (+1.6% expected, +5.2% prior); Initial jobless claims, week ending July 27 (235,000 prior); S&P Global US manufacturing PMI, July final (49.5 prior); Construction spending, month-over-month, July (+0.2% expected, -0.1% prior); ISM manufacturing, July (49 expected, 48.5 prior); ISM prices paid, July (52.1 prior)
- Earnings: Apple (AAPL), Amazon (AMZN), Block (SQ), Booking Holdings (BKNG), Canada Goose (GOOS), Coinbase (COIN), ConocoPhillips (COP), Crocs (CROX), DraftKings (DKNG), Intel (INTC) Marathon Digital Holdings (MARA), Mobileye (MBLY), Moderna (MRNA), Roku (ROKU) SiriusXM (SIRI), Wayfair (W)
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