Blog
Published in Newsletters

Trade Easier - What to know this week

Read what you need to know for the market this week, all in one place, in less than 10 minutes! Also, check out our play of the week and free trading signals we offer.

By Alpaca

Introduction

Stocks surged on Friday, concluding a tumultuous week on a high note as investors analyzed new U.S. inflation data and economic reports. The Dow Jones Industrial Average soared 65427 points, or 1.64%, closing at 40,589.34. Similarly, the S&P 500 rose by 1.11%, finishing at 5,459.10, and the Nasdaq Composite increased by 1.03% to end at 17,357.88.

Friday's Rally Fueled by Multiple Factors

This past Friday rally stemmed from several factors: an oversold market, a robust GDP report from Thursday, and optimism that the Federal Reserve might cut rates in response to strong economic data. Sam Stovall of CFRA Research commented, "Today’s kind PCE report helped calm the market. With this pullback, the big change is still going on and breadth keeps being on our side."

Cyclical Sectors and Small-Cap Stocks in the Spotlight

Investors turned their attention to cyclical sectors and small-cap stocks, leading to a 1.67% rise in the Russell 2000. Industrials and materials stocks were prominent, each boosting their S&P sectors by approximately 1.7%. Notably, 3M experienced a historic surge, soaring 23%, marking its best day since at least 1972, driven by better-than-expected earnings.

Tech Stocks Bounce Back

Tech stocks also showed significant recovery. Microsoft and Amazon both gained over 1%, while Meta Platforms jumped nearly 3%. The tech sector within the S&P 500 climbed about 1%, reflecting renewed investor confidence in technology companies.

Positive Inflation Data

June’s personal consumption expenditures (PCE) price index, a crucial inflation gauge favored by the Federal Reserve, contributed to the positive market sentiment. The index recorded a slight monthly increase of 0.1% and a yearly rise of 2.5%, aligning with economists’ expectations.

Rate Cut Expectations Rise

The encouraging inflation data bolstered investor hopes for multiple rate cuts this year. Current market sentiment suggests potential rate cuts in September, November, and December, as indicated by the fed funds futures market. Ken Mahoney of Mahoney Asset Management noted, "The numbers are looking calmer. In housing and real estate, you see some cracks now—they’ll stop messing around & cut rates."

Weekly Market Performance

Despite the strong finish, the week remained volatile. The S&P 500 dropped 0.8%, and the Nasdaq fell 2.1%, both experiencing consecutive weekly losses for the first time since April. However, the Dow Jones performed well, gaining 0.8%, marking its fourth consecutive positive week since May due to a shift towards small caps and cyclicals.

Dexcom and Deckers' Market Moves

In other notable market moves, Dexcom's shares plummeted by 41% following disappointing full-year guidance. In contrast, Deckers' shares rose by 6% after surpassing fiscal first-quarter earnings and revenue expectations. As of Sunday morning, several reports have been made public, mentioning potential investigations and lawsuits against the company for defrauding investors.

3M's Historic Surge & Wider Market Impact

Friday was remarkable for 3M, achieving its best performance in over half a century. The shares surged more than 21% in afternoon trading due to outstanding second-quarter results, which exceeded analysts' expectations with earnings of $1.93 per share on $6.26 billion in revenue. This significant rise positioned 3M at the top of the Dow Jones on Friday, reaching new highs and marking a year-to-date increase of over 37%.

Diverse Opinions on Interest Rate Cuts

Despite the positive market reaction, there are mixed views on future interest rate cuts. Apollo’s Torsten Slok stated it's "too soon" to discuss substantial rate cuts following the PCE report, although he acknowledged potential for a cut in September, contingent on further inflation progress. Conversely, Wharton’s Jeremy Siegel argued that the Federal Reserve should already be reducing interest rates, citing forward-looking inflation data as support for this stance. Siegel expects Fed Chair Jerome Powell to signal a rate cut in September.

The week’s economic data, including strong Q2 GDP, further supports arguments for rate cuts. Former NY Fed President Bill Dudley, who previously advocated for maintaining higher rates, has revised his stance, pointing to indicators like the McKelvey recession indicator and Sahm Rule, which suggest an impending recession.

As Wall Street navigates these mixed signals, market participants continue to closely monitor economic data and Federal Reserve communications for clues about the future trajectory of interest rates.

Last weeks data

  • Personal Consumption Expenditure (PCE) Prices Index showed a minor rise of 0.1%, exactly as expected. This slight increase marks the slowest climb since March 2021.

  • For Q2, the Gross Domestic Product (GDP) Advanced Reading hit 2.8%. This figure surpassed the expected 2.3% and was higher compared to the 1.4% rise in Q1. A key factor was inventories, which contributed 0.82% to the overall gain.

  • Initial Jobless Claims were at 235K, lower than the estimated 245K; meanwhile, Continuing Claims dipped to 1.851M from last week's figure of 1.867M. It’s worth noting that last week's Continuing Claims number was the highest since November 2021.

  • Existing Home Sales fell by 5.4% from last month, reaching a total of 3.89M units, which missed the expected figure of 4.05M units, marking the lowest level since December.

  • The Atlanta Fed's GNPNow forecast for Q2 stands at 2.8%.

  • Last week witnessed a substantial drop in two-year Treasury yields from 4.51% to the current 4.39%. This is the lowest they have been since February. In contrast, ten-year Treasury yields remained nearly unchanged week-over-week at 4.21%.

  • Markets continue to think a rate cut by the Fed in September is nearly certain. According to Bloomberg's probability data, there’s still a theoretical chance of 100% for a September rate cut, unchanged from last Friday. The big question remains whether Fed Chairman Jerome Powell will agree with market sentiments during this week's FOMC meeting.

Play of the Week: $F (Ford)

Current Price Action: Ford last week had a massive drop from their earnings disappointment. This has left a massive gap beginning on the chart around the $12 range up to about $13.50.

Strategy: Wait for further confirmation of a bottom and set an alert via your preferred broker/trading app to be notified when the gap is being filled. This is an upside play.

This week's notable events

Key Economic Data Releases:

Tuesday, July 30:

  • Consumer Confidence: Measures consumer optimism about the economy.
  • JOLTS: The number of job vacancies for June.
  • S&P Case-Shiller Home Price Index: Monitors the changes in the value of residential real estate.

Wednesday, July 31:

  • ADP Employment Change: Estimates private sector employment changes.
  • Crude Oil Inventories: Tracks weekly changes in crude oil stocks.
  • Employment Cost Index: Measures the growth of labor costs.
  • FOMC Rate Decision: Federal Open Market Committee’s decision on interest rates.
  • FOMC Statement & Press Conference: Expect market volatility.
  • Chicago PMI: Determines the economic health of the manufacturing sector in Chicago region.
  • Pending Home Sales: Tracks homes under contract for sale.

Thursday, August 1:

  • Construction Spending: Reports on the value of construction put in place.
  • Continuing Claims: Ongoing unemployment insurance claims.
  • Initial Claims: New unemployment insurance claims.
  • ISM Manufacturing Index: Indicates manufacturing sector health.
  • Productivity – Preliminary: Initial estimate of labor productivity.
  • Unit Labor Costs - Preliminary: Initial estimate of the cost of labor per unit of output.
  • Atlanta FED - GDPNOW: Running estimate of GDP growth.

Friday, August 2:

  • Nonfarm Payrolls: Total new jobs created in the economy.
  • Nonfarm Private Payrolls: New jobs in the private sector.
  • Unemployment Rate: Percentage of the labor force that is unemployed.
  • Average Hourly Earnings: Average earnings per hour.
  • Factory Orders: Value of new orders for manufactured goods.
  • Commitment of Traders: Identifies data changes when 20 or more traders hold positions equal or above reporting levels established by the CFTC (see what large money is doing).

Key Earnings to Track this week:

Monday, July 29:

  • McDonald's (MCD), On Semiconductor Corp. (ON)

Tuesday, July 30:

  • Proctor & Gamble (PG), Merck & Co. (MRK), Pfizer (PFE), Microsoft (MSFT), Advanced Micro Devices Inc. (AMD), Starbucks Corp. (SBUX)

Wednesday, July 31:

  • T-Mobile US Inc. (TMUS), Boeing Co. (BA), Marriott International (MAR), Humana Inc. (HUM), Meta Platforms Inc. (META), Qualcomm Inc. (QCOM), ARM Holdings (ARM)

Thursday, August 1:

  • ConocoPhillips (COP), Eaton Corp. (ETN), The Cigna Group (CI), Apple Inc. (AAPL), Amazon (AMZN), Intel Corp. (INTC), Booking Holdings Inc. (BKNG)

Friday, August 2:

  • Exxon Mobil Corp. (XOM), Chevron Corp. (CVX)

Conclusion

Wall Street's rally on Friday, driven by positive inflation data and economic resilience, reflects a complex interplay of market dynamics and investor sentiment. As the market continues to respond to economic indicators and Federal Reserve communications, investors remain vigilant, adapting their strategies to navigate an ever-changing financial landscape.

Stay up to date with the market and your strategy with our free signal trading alerts available to all traders in our Discord! Come learn & trade with us!