The stock market recovery is in its most fragile phase in months as Wall Street heads into its busiest week of the summer.
The S&P 500 (GSPC) and Nasdaq Composite (^IXIC) recently suffered their worst single-day declines since 2022, as the indexes struggled to recoup losses during a rally on Friday. All three major averages closed the last full week of July lower. The S&P 500 fell more than 1%, while the Nasdaq fell more than 2.3%. Meanwhile, the Dow Jones Industrial Average (DJI) rose about 0.6%.
In the coming week, a Federal Reserve meeting, the July jobs report and earnings from Big Tech stalwarts Apple (AAPL), Amazon (AMZN), Microsoft (MSFT) and Meta (META) will determine the direction of markets heading into August.
Updates on job openings, activity in the services and manufacturing sectors, and consumer confidence are also on the calendar.
A busy week for corporate earnings is ahead, with 171 members of the S&P 500 set to report quarterly results. AMD (AMD), Arm (ARM), Boeing (BA), McDonald’s (MCD) and Starbucks (SBUX) will be among the headliners on the calendar.
A September “signal”
The Fed will announce its monetary policy decision next Wednesday. Markets widely expect the central bank to keep rates unchanged at its July meeting.
The latest economic updates, however, have investors eyeing the timing of the Fed’s first rate cut. In June, the core personal consumption expenditures (PCE) index, which excludes the cost of food and energy and is closely watched by the Federal Reserve, rose 2.6% from a year earlier, its smallest annual gain in more than three years. Separate data for the month showed a significant decline in another gauge of inflation, the consumer price index (CPI).
At the same time, the labor market has shown signs of slowing. The ratio of job openings to the number of unemployed has returned to pre-pandemic levels, and last month the unemployment rate reached its highest level since November 2021.
That has prompted markets to price in the Fed’s first rate cut in September, and investors will be listening closely to Jerome Powell’s press conference on Wednesday for any confirmation.
“The overall tone of the meeting, including that of Chairman Powell’s press conference, should indicate that a September rate cut is a reasonable baseline without precommitting to that action,” Matthew Luzzetti, Deutsche Bank’s chief U.S. economist, wrote in a note to clients.
A look at the job market
Friday will bring a fresh look at monthly job gains as economists continue to debate whether the recent cooling in the labor market represents a normalization or a broader deterioration.
According to Bloomberg data, the July jobs report is expected to show that 175,000 nonfarm jobs were added to the U.S. economy, while unemployment remains at 4.1%. In June, the U.S. economy added 206,000 jobs, while the unemployment rate climbed to 4.1%.
“The 180,000 jobs we expect to add in July would still be a respectable gain, but would underscore that, in the sense that it is, the jobs market is deteriorating,” Wells Fargo’s economics team led by Jay Bryson wrote in a weekly note to clients. “By a range of measures, including the unemployment rate, the quit rate, the number of temporary workers and small business hiring plans, the labor market is not only weaker than it was a year or two ago, but weaker than it was before the pandemic.”
In this context, the question of whether unemployment will stabilise or increase as has been the case for three months will be particularly studied.
Big Tech on deck
The recent stock market drop has been accompanied by a sharp decline in technology stocks.
Since July 10, Roundhill’s Magnificent Seven ETF (MAGS) — which tracks Nvidia (NVDA), Apple (AAPL), Alphabet (GOOGL, GOOG), Amazon (AMZN), Meta (META), Microsoft (MSFT) and Tesla (TSLA) — has fallen about 12%.
Keith Lerner, Truist’s co-chief investment officer, recently told Yahoo Finance that the pullback makes sense given the run-up in big tech stocks over the past year and how positioning in many big tech stocks has become stretched. That, combined with investors rotating into less-favored areas of the market rally that could benefit from the Fed’s interest rate cuts, has become a hallmark of the market’s action over the past two weeks.
Results from four of the world’s seven largest tech stocks — Amazon, Meta, Microsoft and Apple — could be game-changers. But as Alphabet and Tesla’s earnings slump last week showed, it’s been a tough season to impress investors with results.
“When you look at last week’s results, I don’t think they were bad,” Lerner said. “I don’t think the businesses, the fundamental trends of the businesses, were bad, but I just think they weren’t good enough relative to those very high expectations.”
And, to echo Lerner’s point, stocks that miss Wall Street estimates for earnings, revenue or both experience significantly worse price reactions the following trading day than have typically been seen over the past five years, according to research by Julian Emanuel of Evercore ISI.
For now, Emanuel wrote in a note to clients, “earnings remain a catalyst for volatility, not price action in the S&P 500.”
Weekly calendar
Monday
Economic data : Dallas Fed Manufacturing Activity, July (-14.2 expected, -15.1 previously)
Earnings: McDonald’s (MCD), Philips (PHG), Tilray (TLRY)
Tuesday
Economic data : S&P CoreLogic 20-city consumer confidence index, May, YoY (7.2% ahead); Conference Board, July (99.7 expected, 100.4 ahead); JOLTS, job openings, June (8.14 million ahead); Dallas Fed services activity, (-4.1 ahead)
Earnings: Microsoft (MSFT), Advanced Micro Devices (AMD), BP (BP), Caesars Entertainment (CZR), Electronic Arts (EA), First Solar (FSLR), JetBlue (JBLU), Marathon Petroleum Corporation (MPC), Merck (MRK) ), Pinterest (PINS), Pfizer (PFE), Procter & Gamble (PG), Starbucks (SBUX), SoFi (SOFI)
Wednesday
Economic data : MBA Mortgage Applications, Week Ended July 26 (-2.2% prior); ADP Private Payrolls, July (+168,000 expected, +150,000 prior); Minnesota Chicago PMI, July (44.0 expected, 47.4 prior); Employment Cost Index, Q2 (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 Job Cuts, YoY, July (+19.8% pre-release); Unit Labor Costs, Q2 (+4% pre-release); Nonfarm Productivity, Q4 (+1.6% forecast, +5.2% pre-release); Initial Jobless Claims, Week Ending July 27 (235,000 pre-release); S&P Global US Manufacturing PMI, July Final (49.5 pre-release); Construction Spending, MoM, July (+0.2% forecast, -0.1% pre-release); ISM Manufacturing, July (49 forecast, 48.5 pre-release); ISM Prices Paid, July (52.1 pre-release)
Earnings: Apple (AAPL), Amazon (AMZN), Block (SQ), Booking Holdings (BKNG), Canada Goose (GOOS), Coinbase (COIN), ConocoPhillips (COP), Crocs (CROX), DraftKings (DKNG), Marathon Digital Holdings (MARA), Mobileye (MBLY), Moderna (MRNA), Roku (ROKU), SiriusXM (SIRI), Wayfair (W)
Friday
Economic calendar: Nonfarm payrolls, July (+175,000 expected, +206,000 previously); Unemployment rate, January (4.1% expected, 4.1% previously); Average hourly earnings, month-to-month, July (+0.3% expected, +0.3% previously); Average hourly earnings, year-to-year, July (+3.7% expected, +3.9% previously); Average hours worked per week, July (34.4 expected, 34.3 previously); Labor force participation rate, July (62.6% previously); Factory orders, June (+0.5% expected, -0.5% previously); Durable goods orders, June final (-6.6% previously)
Earnings: Chevron (CVX), Exxon Mobil (XOM)