©®™Uguba™ndubuisi™blog |: Morning Brief: What to know this week

Monday 22 July 2024

Morning Brief: What to know this week

Monday, Jul 22

👋 Good morning! Here's our Markets Reporter Josh Schafer with your preview of the week ahead.

What we're watching

📉 Stock pullback: Stocks pulled back from record highs amid pressure across the technology sector after a global tech outage sent shockwaves throughout the market on Friday.

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The S&P 500 ended the week down nearly 2% while the Nasdaq Composite dropped more than 3.5% on the week. Both indexes had their worst weekly performance since April. Meanwhile, the Dow Jones Industrial Average rose about 0.7%.

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This week, critical readings on economic growth and inflation, as well as the start of Big Tech earnings, will determine if the malaise continues.

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Joining these narratives is the latest wrinkle in the 2024 presidential election: the news that President Biden is abandoning his campaign and endorsing Vice President Kamala Harris as the Democratic nominee.
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🏷️ Inflation outlook: Last week, new data showing a slowdown in inflation prompted markets to put the chances that the Federal Reserve cuts rates by the end of its September meeting at 100%.

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The week ahead will bring another look at inflation, this time with the Fed's preferred gauge: The Personal Consumption Expenditures (PCE) index.

Due out on Friday, economists expect "core" PCE increased 2.5% in June from the previous year, down from May's 2.6% annual gain. Over the prior month, economists expect "core" PCE rose 0.2%, slightly above May's 0.1% increase.

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The release comes less than a week before the Fed's next monetary policy decision on July 31. Markets are widely expecting the central bank to hold interest rates steady.

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📈 Growth check: One key question on investors' minds is whether the economy can remain resilient with rates still at their most restrictive levels in more than two decades.

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Thursday will bring the first reading of Gross Domestic Product (GDP) for the second quarter. Economists expect the US economy grew at an annualized pace of 1.9% in the second quarter, up from the 1.4% growth rate seen in the first quarter.

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Bank of America Securities head of economics Michael Gapen summed up expectations for the upcoming week's data release in a weekly note, writing," The data should show healthy activity, and that inflation is moving in the right direction."

🔄 Signs of a rotation: Since investors have become more optimistic about the likelihood of multiple interest rate cuts this year, a shift has been underway within the stock market.

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In the past 10 days, Real Estate and Financials have led individual sector action. Meanwhile the market's biggest winners of the past year, Technology and Communication Services, have recently been the worst-performing sectors in the S&P 500.

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And the rotation has finally trickled down in cap size too, with small caps joining the 2024 stock market rally.

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The small-cap Russell 2000 is up about 8% over the past month, while the S&P 500 is up less than 1% in the same time period, sparking debate over whether this bout of small-cap outperformance can continue.

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"We think there is room for the rotation into low quality to persist if rate cuts remain priced and the Trump 2.0 trade carries on ahead of US elections," UBS Investment Bank US equity derivatives strategist Maxwell Grinacoff wrote in a note to clients on Thursday.

Chart of the day

With Big Tech stumbling amid the market rotation, the fundamental story for some of the stock market's largest names will be in focus in the week ahead.

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Tesla and Alphabet are slated to report earnings after the bell on Tuesday. Second quarter results from the two Magnificent Seven members will provide an early read on investor appetite for the most popular trade of 2023. Both stocks are up double digits over the past six months despite the recent sell-off.

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The question is whether the AI-fueled trajectory upward can continue.

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"The biggest risk heading into the next six to eight weeks is, are we setting ourselves up for this AI disappointment [in earnings]?" Ryan Grabinski, Strategas Research Partners managing director of investment strategy, told Yahoo Finance. "Do all of the trades that were associated with AI ultimately begin to unwind themselves?"

How Big Tech companies perform will likely determine the trajectory of earnings growth for the broader S&P 500. Four companies — Alphabet, Nvidia, Meta, and Amazon — are expected to grow earnings by 56.4% compared to the same period a year prior, according to FactSet senior earnings analyst John Butters. The other 496 are expected to grow earnings by just 5.7%.

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When combining the two groups, the S&P is currently on pace to produce year-over-year earnings growth of 9.7%. This would mark the best quarter for earnings growth since the fourth quarter of 2021.

Morning Brief is written and edited by Ethan Wolff-Mann. For the web version, click here. Follow all the action throughout the day on Yahoo Finance and on the Yahoo Finance app.

Earnings and economic calendar

Monday

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Economic data: Chicago Fed Nat Activity Index, June (-0.06 expected, +0.18 prior)

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Earnings: Cleveland Cliffs (CLF), Nucor (NUE), SAP (SAP), Truist (TFC), Verizon (VZ), Zions Bancorporation (ZION)

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Tuesday

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Economic data: Richmond Fed Manufacturing Index, July (-7 expected, -10 prior); Existing home sales month-over-month, June (-2.7% expected, -0.7% previously)

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Earnings: Alphabet (GOOG, GOOGL), Cal-Maine Foods (CALM), Capital One (COF), Comcast (CMCSA), Enphase (ENPH), Freeport-McMoRan (FCX), GE Aerospace (GE), General Motors (GM), Lockheed Martin (LMT), Phillip Morris International (PM), Spotify (SPOT), Tesla (TSLA), UPS (UPS), Texas Instruments (TXN), Visa (V)

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Wednesday

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Economic data: MBA Mortgage Applications, week ending July 19 (+3.9% prior); S&P Global US manufacturing PMI, July, preliminary (51.4 expected, 51.6 previously); S&P Global US services PMI, July, preliminary (55 expected, 55.3 previously); S&P Global US composite PMI, July, preliminary (54.8 previously); New home sales, month-over-month, June (+3.8% expected, -11.3% previously)

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Earnings: AT&T (T), Chipotle (CMG), Ford (F), IBM (IBM), General Dynamics (GD), Lamb Weston (LW), Las Vegas Sands (LVS), ServiceNow (NOW), Viking Therapeutics (VKTX), Waste Management (WM), Whirlpool (WHR)

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Thursday

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Economic data: Second quarter GDP, advance estimate (+1.9% annualized rate expected, +1.4% previously); First quarter personal consumption, advance estimate (+1.7% expected, 1.5% previously); Initial jobless claims, week ended, July 20 (243,000 previously); Durable goods, June preliminary (+0.5% expected, +0.1% previously)

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Earnings: American Airlines (AAL), AstraZeneca (AZN), Boston Beer (SAM), Deckers (DECK), Hasbro (HAS), Honeywell (HON), Juniper Networks (JNPR), Keurig Dr. Pepper (KDP), New York Community Bancorp (NYCB), RTX (RTX), Skechers (SKX), Southwest (LUV), Texas Roadhouse (TXRH), Valero (VLO)

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Friday

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Economic data: Personal income, month-over-month, June (+0.4% expected, +0.5% previously); Personal spending, month-over-month, June (+0.3% expected, +0.2% previously); PCE inflation, month-over-month, June (+0.1% expected, 0% previously); PCE inflation, year-over-year, June (+2.5% expected, +2.6% previously); "Core" PCE, month-over-month, June (+0.2% expected, +0.1% previously); "Core" PCE, year-over-year, June (+2.5% expected; +2.6% previously); University of Michigan consumer sentiment, July, final reading (66.3 expected, 66 previously)

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