Despite Friday’s rally, the S&P 500 and Nasdaq experienced a difficult week, with the Dow and small-cap Russell 2000 emerging as the winners due to the continued rotation from market darlings to underperforming stocks. The S&P 500 health care index performed well, followed by materials and utilities, while communication services, consumer discretionary, and information technology sectors lagged. Stronger-than-expected economic growth for the second quarter was reported, along with a personal consumption expenditures price index that supported the case for three interest rate cuts by the Federal Reserve starting in September. Weak housing data also favored rate cuts as existing and new home sales were below expectations.
In terms of earnings, positive results were seen from companies like Danaher and Dover, while Ford experienced a major disappointment with a nearly 20% stock drop for the week. Alphabet and Honeywell also saw post-earnings sell-offs, with Alphabet facing profit-taking despite strong performance, and Honeywell revising its earnings outlook downwards. So far, 78% of the S&P 500 companies that have reported earnings have exceeded expectations, with 60% reporting better-than-expected revenue. In the upcoming week, several major companies, including Procter & Gamble, Microsoft, Amazon, and Apple, are set to report earnings, along with economic reports on jobs data, manufacturing, and pending home sales.
Procter & Gamble will focus on providing value through innovation and sustaining market share gains and volume growth. Stanley Black & Decker is undergoing a turnaround, emphasizing inventory optimization and cost efficiencies. Advanced Micro Devices will provide updates on demand for AI chips and PC refresh cycles, as well as its software offerings strategy. Microsoft’s Azure cloud growth is a key metric, and investors will look for insights into AI investments. Starbucks aims to stabilize traffic, with potential activist pressure from Elliott Management if performance disappoints. GE Healthcare, DuPont, and other companies will report on various aspects of their businesses and industry outlooks.
The week will also feature major economic reports on employment, including the July employment report, the ADP survey of hiring, and the Job Openings and Labor Turnover Survey (JOLTS). The July Fed meeting is set to conclude, with expectations that the path to a rate cut in September will be clarified. A variety of companies will report earnings throughout the week, with a particular focus on industries like healthcare, technology, energy, and retail. Investors will closely monitor these reports and economic indicators for insights into the current state of the economy and potential market trends.
