As investors cycle out of big tech, mid-caps take the lead, and key economic data releases will shape the Fed’s next move 🕺
As investors began to cycle out of big tech and into mid caps our major indexes experienced a pull back from their record high levels this last week. Let’s dive straight into last weeks index performances:
The S&P500 shed off about 2% through its trading week
The Nasdaq Composite dropped more than 3.5%
The Dow Jones Industrial however was able to rise about 0.7%
Looking at our economic side the advanced reading of our 2nd quarter growth is set to release on Thursday, with Personal Consumption Expenditure set for Friday, both key gauges for inflation that the Fed uses.
Inflation Expectations and the Fed’s Next Move 🕺
The latest inflation data has sparked a significant shift in market expectations. With the Personal Consumption Expenditures (PCE) index set to be released on Friday, economists are predicting a slowdown in inflation, which could pave the way for the Federal Reserve to cut interest rates later this year.
According to a Bloomberg survey, economists expect the core PCE index to rise 2.5% in June from the previous year, down from May’s 2.6% annual gain. This would be a welcome sign for the Fed, which has been struggling to bring inflation back down to its 2% target.
As noted by Michael Gapen, head of economics at Bank of America Securities, “The data should show healthy activity, and that inflation is moving in the right direction.” (Source: Bloomberg)
GDP Growth and the Economy’s Resilience 📈
On Thursday, we’ll get the first reading of Gross Domestic Product (GDP) for the second quarter. Economists expect the US economy to have grown at an annualized pace of 1.9% in the second quarter, up from the 1.4% growth rate seen in the first quarter.
This would be a positive sign for the economy, which has been showing signs of resilience despite the Fed’s restrictive monetary policy. As noted by the Wall Street Journal, “The economy has been growing at a moderate pace, despite the Fed’s efforts to slow it down.” (Source: Wall Street Journal)
Market Rotation and Sector Performance ðŸŽ
In recent weeks, we’ve seen a significant rotation in the market, with Real Estate (XLRE) and Financials (XLF) leading the way. This shift has been driven by expectations of lower interest rates and a more dovish Fed.
As noted by Maxwell Grinacoff, US equity derivatives strategist at UBS Investment Bank, “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.” (Source: Yahoo Finance)
Big Tech Earnings and the AI Trade 🤖
This week, we’ll get earnings reports from some of the biggest names in tech, including Tesla and Alphabet. These reports will provide an early read on investor appetite for the most popular trade of 2023.
As noted by Ryan Grabinski, managing director of investment strategy at Strategas Research Partners, “The biggest risk heading into the next six to eight weeks is, are we setting ourselves up for this AI disappointment [in earnings]?” (Source: Yahoo Finance)
Overall, this week’s data releases and earnings reports will provide important insights into the state of the economy and the market’s expectations for the Fed’s next move.
Weekly Calendar 📅
Monday
Economic data: The Chicago Fed Nat Activity Index for June is expected to come in at -0.06, down from +0.18 previously.
Earnings: Cleveland Cliffs (CLF), Nucor (NUE), SAP (SAP), Truist (TFC), Verizon (VZ), and Zions Bancorporation (ZION) are all set to report earnings.
Tuesday
Economic data:
The Richmond Fed Manufacturing Index for July is expected to come in at -7, down from -10 previously.
Existing home sales for June are expected to decline by 2.7% month-over-month
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), and Visa (V) are all set to report earnings.
Wednesday
Economic data:
MBA Mortgage Applications for the week ending July 19 are expected to increase by 3.9%.
The S&P Global US manufacturing PMI for July is expected to come in at 51.4, while the services PMI is expected to come in at 55.
New home sales for June are expected to increase by 3.8% month-over-month.
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), and Whirlpool (WHR) are all set to report earnings.
Thursday
Economic data:
The second quarter GDP advance estimate is expected to come in at +1.9% annualized rate, up from +1.4% previously.
First quarter personal consumption is expected to increase by 1.7%. Initial jobless claims for the week ended July 20 are expected to come in at 243,000.
Durable goods for June are expected to increase by 0.5%.
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), and Valero (VLO) are all set to report earnings.
Friday
Economic data:
Personal income for June is expected to increase by 0.4% month-over-month, while personal spending is expected to increase by 0.3%.
PCE inflation for June is expected to come in at +0.1% month-over-month, while the year-over-year rate is expected to come in at +2.5%.
The University of Michigan consumer sentiment index for July is expected to come in at 66.3.
Earnings: 3M (MMM), Bristol Myers Squibb (BMY), Colgate-Palmolive (CL), and Charter Communications (CHTR) are all set to report earnings.
