Stocks surged ahead of imminent central bank decisions, pivotal economic data releases, and earnings reports from four tech giants collectively valued at nearly $10 trillion.
Nearly 300 stocks in the S&P 500 saw gains, marking a recovery after recent market rotations that had pushed the Nasdaq 100 close to correction territory. Major tech stocks rebounded while small-cap stocks retreated. The upcoming earnings announcements from Microsoft Corp., Meta Platforms Inc., Apple Inc., and Amazon.com Inc. are eagerly awaited following a lackluster start to the earnings season for mega-cap companies.
Federal Reserve officials are expected to consider lowering interest rates in the coming months, with Chairman Jerome Powell possibly signaling this intention during an upcoming press conference.
“The focus this week will be on the Fed’s decisions and tech earnings,” said Paul Nolte, a strategist at Murphy & Sylvest Wealth Management. “The direction of interest rates should become clearer post the conference, while big tech results will shed light on whether investors’ high growth rate expectations are justified.”
The S&P 500 hovered near 5,465, with the “Magnificent Seven” mega-cap stocks collectively gaining 1%. In contrast, the Russell 2000 index, which tracks smaller companies, declined by 1.1%. Tesla Inc. saw its stock rise following a bullish recommendation from Morgan Stanley. Despite a decline in sales, McDonald’s Corp. investors remained optimistic due to promised upcoming promotions. Meanwhile, energy stocks mirrored a downturn in oil prices.
Treasury bonds saw little movement but are on track for their third consecutive month of gains, marking the longest winning streak since 2021. The US government reduced its estimate for quarterly borrowing and predicted a decline in its cash reserves by year-end. Concurrently, companies rushed to raise funds through debt markets ahead of the Fed’s anticipated decision.
US policymakers are widely expected to maintain current interest rates, which have been at their highest in over two decades for the past year. However, market observers anticipate signals from the Fed indicating a potential rate cut in September amidst concerns about maintaining a stable job market amid moderating growth.
Investors will also scrutinize rate decisions in Japan and the UK, with expectations of a hike and a cut, respectively.
Bitcoin prices declined as attention shifted away from political endorsements to supply-related factors.
July’s volatile stock market movements highlighted the waning simplicity of relying solely on large tech companies for profits. Despite speculation that Fed rate cuts could bolster corporate profits, the S&P 500 endured two consecutive weeks of losses, largely due to declines in its technology sector.
“While uncertainty persists about the market’s recent downturn, we believe the overall equity market environment remains favorable due to robust growth, declining inflation, potential Fed rate cuts, and increased spending on AI,” said David Lefkowitz of UBS Global Wealth Management.
Whether or not the Fed opts for rate cuts in September, John Stoltzfus of Oppenheimer Asset Management believes that the groundwork for a broad stock market rally is being laid in anticipation of such a move.
“The dominance of a handful of tech giants this year doesn’t reflect mere optimism but rather underscores the enduring impact of technology on markets,” noted Michael Wilson of Morgan Stanley.
Wilson, previously bearish on US stocks, warned that weakening corporate earnings prospects could hamper stocks tied to economic performance, particularly amid concerns about reduced pricing power in a low inflation environment.
Despite these challenges, some analysts remain optimistic about smaller companies and their potential to thrive as the economy continues to expand, with expectations of the Fed’s first rate cut of the current cycle approaching.
Bret Kenwell of eToro highlighted historical data showing strong performance by the Russell 2000 following significant monthly gains, suggesting potential continued strength in small-cap stocks.
“In historical terms, whenever the Russell 2000 has recorded a monthly gain of 10% or more, it has been higher six months later approximately 90% of the time, with an average gain of around 11.5%,” Kenwell observed.
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