Macro Matters – Weekly review, w/c July 29

TradeDay Macro Matters

Macroeconomic / Geopolitical Developments

• Stock rotation continues

• Google and Tesla weigh on big tech/growth stocks

• PCE data slightly warmer than expected

• A super busy week in focus: Fed, BoE, 4x Magnificent Seven earnings, PMI plus US Jobs!

• What’s Ahead

Stock Rotation Continues

The ongoing stock rotation has marked a shift away from mega-cap technology stocks, despite a strong earnings season where 78% of the 136 S&P 500 companies that reported last week exceeded expectations. The S&P 500 fell by 0.8% for the week, with the Magnificent 7—Microsoft, Meta, Amazon, Apple, NVIDIA, Alphabet, and Tesla—collectively losing 3.9%. This decline was driven by Tesla’s disappointing earnings and Alphabet’s underwhelming price performance, despite surpassing expectations. Meanwhile, small-cap stocks surged 11.4% since July 9, and midcaps gained 4.5%, signaling a broader market rotation. Banks and small-cap stocks outperformed, easing fears of an imminent recession. This rotation suggests a shift in market dynamics, with increased investor focus on businesses that could benefit from economic growth rather than tech-driven rallies.

Google and Tesla Weigh on Big Tech/Growth Stocks

The S&P 500 and Nasdaq hit multi-week lows last Wednesday as disappointing earnings from Alphabet and Tesla weighed on major tech stocks. The S&P 500 posted its worst one-day performance since December 2022, dropping 2.3%, while the Nasdaq Composite experienced its largest single-day decline since October 2022. Tesla shares fell 12.3%, their worst drop since September 2020, due to the lowest profit margin in over five years. Alphabet’s 5% decline, despite beating earnings expectations, was fueled by concerns over advertising slowdowns and high capital expenses. These declines emphasized the vulnerability of major indices to big tech performance.

PCE Data Slightly Warmer Than Expected

The core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, remained unchanged at 2.6% in June, slightly above the 2.5% forecast. Services inflation persisted at 3.9% year-over-year, while goods prices declined. Consumer spending rose by 0.2% in June, reflecting economic resilience despite the Fed’s aggressive rate hikes. Markets are pricing in a nearly 100% chance of a rate cut by September, signaling optimism for easing monetary policy amid inflationary concerns.

A Super Busy Week in Focus: Fed, BoE, 4x Magnificent Seven Earnings, PMI Plus US Jobs!

Earnings:

The upcoming week is pivotal for corporate earnings and macroeconomic data. Microsoft, Meta Platforms, Amazon, and Apple are set to release earnings, with expectations of strong performance driven by AI innovations and robust demand for services.

Central Banks:

The Federal Reserve, Bank of England, and Bank of Japan will hold monetary policy meetings. While the Fed and BoE are expected to maintain current rates, their statements will be closely scrutinized for potential rate cut signals. The Bank of Japan may discuss a rate hike and moderating its bond purchase program.

Macro Data:

The US jobs report is expected to show a rise in nonfarm payrolls by 175,000 jobs in July, down from June’s 206,000. The Institute for Supply Management’s manufacturing PMI and global manufacturing PMI data will offer insights into economic activity. Other highlights include the JOLTS report and the ADP Employment report.

What’s Ahead

Central Bank Watch:

• Bank of Japan Interest Rate Decision and Monetary Policy Statement (Tuesday)

• Federal Reserve Interest Rate Decision and Monetary Policy Statement (Wednesday)

• Bank of England Interest Rate Decision and Monetary Policy Statement (Thursday)

Macro Data Watch:

• 07/30/2024: EU GDP, Japanese Employment Report, German CPI and GDP

• 07/31/2024: BoJ Interest Rate Decision, EU CPI, Fed Interest Rate Decision

• 08/01/2024: Global Manufacturing PMI, US ISM Manufacturing PMI, BoE Interest Rate Decision

• 08/02/2024: US Employment Report, Factory Orders

Earnings Watch:

• 07/30/2024: Microsoft, P&G, Merck, AMD, Pfizer

• 07/31/2024: Meta Platforms, Mastercard, Qualcomm

• 08/01/2024: Apple, Amazon, Intel

• 08/02/2024: Exxon Mobil, Chevron

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