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JUST IN:
At 2:15pm EST, reported by Yahoo Finance, Joe Biden has determined to end his campaign for re-election, throwing the Democrats in scramble mode for the rapidly approaching election this November.
Rapid Recap
Friday marked a day of significant stock market activity as Wall Street witnessed a noticeable shift from megacap tech winners to smaller firms. This movement resulted in declines across major indices, including the S&P 500 and Nasdaq Composite, while the Dow Jones Industrial Average saw modest gains. This article delves into the details of this shift, its impact on various sectors, and expert insights on the current market trends.
S&P 500 and Nasdaq Composite Decline
The S&P 500 dropped by 0.71%, closing at 5,505.00, while the Nasdaq Composite slid 0.81%, ending at 17,726.94. The Dow Jones Industrial Average fell 0.93% to 40,287.53, showcasing a general trend of market pullback.
Weekly Performance Highlights
For the week, the S&P 500 and Nasdaq recorded their most significant losses since April, slipping 1.97% and 3.65%, respectively. The Nasdaq's decline also ended its six-week winning streak. In contrast, the Dow edged up by 0.72%, and the Russell 2000 surged by 1.68%, indicating a growing interest in smaller firms.
Shift from Megacap to Smaller Firms
"The stock market is experiencing a much-needed rotation," said Glen Smith, Chief Investment Officer at GDS Wealth Management. Investors are moving funds out of high-performing big tech stocks and into other market areas, particularly those anticipated to benefit from potential Federal Reserve interest rate cuts.
Impact on Major Indices
This rotation has impacted the Nasdaq's performance, particularly due to the pullback in megacap AI beneficiaries. The information technology sector led the decline in the S&P 500, falling by 5.1%.
Optimism Around Interest Rate Cuts
With rising optimism about future Fed interest rate cuts, smaller and more cyclical names have gained support. This shift has relieved some Wall Street experts who feared the market rally was overly dependent on a few giant tech stocks.
Information Technology Sector
The information technology sector faced significant challenges, leading the decline in the S&P 500. CrowdStrike, for instance, plunged by 11.1% due to a significant IT outage affecting businesses worldwide.
Despite the tech sector's struggles, other areas like energy and finance outperformed, indicating a diverse impact across different market sectors.
Dow's Major Losers and Gainers
Several megacap tech stocks, including Amazon, Intel, Microsoft, Apple, and Salesforce, were among the Dow’s major losers this week. Conversely, UnitedHealth Group, Caterpillar, Chevron, Johnson & Johnson, and JPMorgan Chase were the top performers, showcasing significant gains.
Long-Term Dollar Weakening
Analysts like those at UBS suggest reducing dollar exposure ahead of potential Fed rate cuts in September. They predict a long-term weakening of the dollar and advise selling dollar rallies.
Bitcoin's Resurgence
Bitcoin reached its highest level since June, rising nearly 15% over the week, signaling a strong bounce-back in the cryptocurrency market.
Gold's Volatility
Gold prices saw their most significant one-day drop since June 7, highlighting ongoing volatility in the commodities market.
Amazon's Prime Day Impact
Bank of America analyst Justin Post highlighted that Amazon disclosed fewer details in its Prime Day press release. Despite this, Prime Day's success is expected to boost Amazon’s Q3 outlook.
Adobe Analytics data showed that back-to-school shopping is highly promotional this season, with online discounts peaking at about 23% for electronics.
Economic Data, Rates & the Fed
This past week's economic highlights provided some evidence of the strength of the consumer, and a relatively more patient stance on inflation and monetary policy from the European Central Bank (ECB) and International Monetary Fund (IMF). Also, there is evidence that some slack is developing in the labor market.
The ECB left rates unchanged last week, citing sticky services inflation, and ECB President Christine Lagarde said September's meeting remains wide open.
The IMF echoed the sentiment around stubborn services inflation expectations and said inflation would decline more slowly in 2024-2025 than previously forecasted.
Here are some of the highlights of last week's economic reports:
Retail Sales (June): 0% vs. -0.3% est, and May retail sales were revised up to 0.3% from a prior reading of 0.1%; retail sales ex-autos rose by around 0.4%, above +0.1% anticipated and better than an upwardly revised +0.1% in May.
Initial Jobless Claims: 243K, well above the estimate of about 230K. This represents the highest levels since last August.
Keep in mind, continuing claims were around 1.8M, above around 1.8M expected. This signifies the highest levels since November of 2021.
Also, the Atlanta Fed's GDPNow forecast for Q2 was revised up to 2.7% Wednesday, up from the previous 2.5%.
Bond yields saw an uptick this week as yields on both two-year and ten-year Treasuries climbed about five basis points. Current levels are approximately 4.5% and 3.6%, respectively.
Market hopes for a Federal Reserve rate cut are essentially unchanged on a week-over-week basis. The probability of a September rate cut is still theoretically at 100%, way above 82% seen last Friday. While a September cut seems highly likely, remember additional inflation data points to get through: PCE on July 26, and CPI & PPI in mid-August and mid-September, before the open market committee (FOMC) meeting on September 17/18.
Play of the Week: $MSFT (Microsoft)
Current Price Action:
- Retracement: After a few days of retracement, consolidation is expected with a potential move to the upside.
Support and Entry Levels:
- Primary Entry: Ideally, a pullback into the $431-$432 area for long positions.
- Secondary Support: If it breaks below, look for a bounce in the $412-$413 area.
Target Levels:
- Upside Target: $445-$450
For Long Positions:
- Entry Point:
- Enter around the $431-$432 support zone if price action confirms.
- Look for confirmation signals such as bullish candlestick patterns, increased volume, or other technical indicators (e.g., RSI, MACD).
- Exit Point:
- Target the $445-$450 range for taking profits.
- Risk Management:
- Set a stop-loss just below the $431-$432 support zone to manage downside risk.
- Re-evaluate the position if MSFT breaks below this level.
Secondary Support Strategy:
-
If Breaks Below $431-$432:
- Look for a bounce in the $412-$413 area.
- Consider entering long positions if there are bullish signals confirming the support hold.
-
Exit Point:
- Target the $445-$450 range if the bounce is successful.
-
Risk Management:
- Set a stop-loss just below the $412-$413 support area to manage risk.
Additional Considerations
- Thorough Research: Conduct thorough research and stay updated with market news, earnings reports, and other relevant factors that could impact MSFT's price.
- Short Opportunity: Any rejection from the $431 area could be used to grab puts or from the $445-$450 range if price action moves upward.
Before making any investment decisions, conducting thorough research and considering consulting with a financial advisor is crucial. This analysis is based on previous price action, which does not indicate future price action.
Key Economic Data Releases
Tuesday, July 23:
- Existing Home Sales (Jun) - Shows trends within the housing market relating to supply and demand.
Wednesday, July 24:
- S&P PMI: Analyzes trends in manufacturing and serviices to determine health.
- Crude Oil Inventories: Influences oil pricing and energy market trends.
- New Home Sales: Indicator of new homes being built and sold affecting housing supply.
Thursday, July 25:
- Retail Inventories: To see unwanted supply and gauge the health of consumerism.
- Continuing Claims: Offers continuous insights into the job market.
- Durable Goods: Gives a snapshot into manufacturing sector health.
- Q2 GDP: An overview of how the broader economic is performing.
- Initial Claims: A weekly snapshot of new unemployment filings.
Friday, July 26:
- PCE Prices: Captures inflation/deflation data while reflecting changes in consumer behavior.
- University of Michigan Consumer Sentiment & Inflation Expectation: Snapshot into consumer confidence levels regarding personal finances.
- Commitment of Traders Report: 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).
Earnings Reports to Watch
Monday, July 22:
- Verizon Communications (VZ), Truist Financial Corp. (TFC), Cadence Design Systems Inc. (CDNS), NXPI Semiconductors NV (NXPI), Nucor Corp. (NUE)
Tuesday, July 23:
- Coca-Cola Co. (KO), Danaher Corp. (DHR), GE Aerospace (GE), Philip Morris International (PM), United Parcel Service Inc. (UPS), Lockheed Martin Corp. (LMT), Alphabet Inc. (GOOGL), Tesla (TSLA), Visa Inc. (V), Texas Instruments (TXN)
Wednesday, July 24:
- Thermo-Fisher Scientific Inc. (TMO), Nextra Energy Inc. (NEE), AT&T Inc. (T), International Business Machines Corp. (IBM), ServiceNow Inc. (NOW), KLA Corp. (KLAC), Waste Management Inc. (WM)
Thursday, July 25:
- AbbVie Inc. (ABBV), AstraZeneca PLC (AZN), Union Pacific Corp. (UNP), Honeywell International Inc. (HON), RTX Corp. (RTX), Valero Energy Corp. (VLO), Digital Realty Trust Inc. (DLR), L3 Harris Technologies Inc. (LHX), Decker's Outdoor Corp. (DECK)
Friday, July 26:
- Bristol-Myers Squibb (BMY), Colgate-Palmolive Co. (CL), AON PLC (AON), 3M Co. (MMM), Charter Communications Inc. (CHTR)
Conclusion
This week’s stock market activity highlighted a significant shift from megacap tech stocks to smaller firms, driven by optimism around potential Fed interest rate cuts. Despite notable declines in the S&P 500 and Nasdaq, the Dow and Russell 2000 showed resilience, reflecting the market’s dynamic nature. As investors continue to navigate these changes, stay up to date with our free newsletter & join our Discord server with free alerts and more here!