Stocks Climb as Big Tech Rebounds After Rotation: Markets Wrap

   2024-07-29 16:07


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(Bloomberg) — Stocks rose ahead of major central bank decisions, key economic data and earnings from four megacaps worth nearly $10 trillion.



Following a rotation that drove the Nasdaq 100 to the brink of a correction, big tech climbed — while small caps slipped after rallying as much as 10% in July. Results from Microsoft Corp., Meta Platforms Inc., Apple Inc. and Amazon.com Inc. will be crucial after an underwhelming start of the megacap reporting season. Federal Reserve officials are on the verge of lowering rates within months, a move Jerome Powell may signal Wednesday.

“The Fed and tech earnings will have the spotlight for the week,” said Paul Nolte at Murphy & Sylvest Wealth Management. “The future direction of interest rates should be clearer after the press conference. Big tech can answer whether investor’s expectations for still high growth rates is warranted.”

The S&P 500 hovered near 5,480. A Bloomberg gauge of the “Magnificent Seven” megacaps gained 1.6%. The Russell 2000 of smaller firms fell 0.9%. Tesla Inc. jumped on a bullish Morgan Stanley call. McDonald’s Corp. investors shrugged off the burger chain’s sales as executives pledged to launch new promotions.

Treasuries were mildly higher and heading toward a third month of gains — the longest winning run since 2021. Corporate borrowers are rushing to raise cash before a series of central bank meetings kick off. 

US policymakers, who’ve kept rates at a more than two-decade high for a full year, are widely expected to leave them there again on Wednesday. But investors see officials signaling a move in September as risks grow of imperiling a solid, but moderating job market. Rate decisions in Japan and the UK will also be closely watched — the former for a hike, the latter for a cut.

“It’s almost impossible to know if the worst of the recent market pullback is over, but we continue to believe the equity market backdrop is favorable due to resilient growth, falling inflation, likely Fed rate cuts, and AI spending,” said David Lefkowitz at UBS Global Wealth Management.

Whether or not the Fed cuts rates in September, the foundations of a broad stock rally seem to be coming into place in anticipation of it, according to John Stoltzfus at Oppenheimer Asset Management.

“The dominance of a few tech names thus far this year appears not so much about California Dreamin’ or irrational exuberance — rather is reminiscent of the old adage that the technology genie once let out never goes back into its bottle — but rather morphs into new developments and trends,” he noted.

Companies in the S&P 500 that beat Wall Street estimates on sales and earnings outperformed the US stock benchmark by 2.4 percentage points the subsequent day, the strongest since the fourth quarter of 2018, according to Bank of America Corp.’s Savita Subramanian. On the flipside, investors are punishing companies that missed earnings estimates less. 

“This suggests that recent themes driving surprises may be less crowded as themes beyond AI emerge,” the strategist wrote.

To Morgan Stanley’s Michael Wilson, a dimmer outlook for US corporate earnings is likely to hurt stocks that are tied to the economy, as investors worry about the impact of falling inflation on pricing power.

The strategist — who was among the biggest bearish voices on US stocks last year — said that a gauge that measures profit upgrades versus downgrades has turned weaker, as is typical for this time of the year. That’s being driven primarily by so-called cyclical sectors.

RBC Capital Markets strategist Lori Calvasina also said trends in earnings revisions don’t yet support a further rotation in market leadership.

After an exuberant first half of 2024, traders should reel in their optimism about stock-market gains in the months to come, based on a measure from SentimenTrader that preceded weaker performance the last time it hit similar levels.

A majority of key indicators tracked by the firm have been in “risk-on” mode for 182 straight days, approaching a level last seen during the meme-stock frenzy of 2021, when they met the threshold for 223 days. Only three streaks have been longer than the current one since the investment research firm began calculating this measure in 2000. Following such episodes, the S&P 500 rose just 44% of the time in subsequent months, with short-term gains typically receding longer term, per the firm’s analysis.

Corporate Highlights:

  • ON Semiconductor Corp. rallied after the semiconductor maker reported better-than-expected results for the second quarter.
  • Apple Inc.’s upcoming artificial intelligence features will arrive later than anticipated, missing the initial launch of its upcoming iPhone and iPad software overhauls but giving the company more time to fix bugs.
  • Reckitt Benckiser Group Plc plunged to an 11-year low on Monday after a verdict against Abbott Laboratories intensified concerns over infant formula lawsuits faced by both companies.
  • Alibaba Group Holding Ltd. unveiled a plan to earn more service fees from merchants.

Key events this week:

  • Eurozone economic confidence, GDP, consumer confidence, Tuesday
  • US JOLTS job openings, consumer confidence, Tuesday
  • Microsoft earnings, Tuesday
  • Eurozone CPI, Wednesday
  • Bank of Japan policy decision, Wednesday
  • US ADP employment change, Wednesday
  • Fed rate decision, Wednesday
  • Meta Platforms earnings, Wednesday
  • Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Thursday
  • US initial jobless claims, ISM Manufacturing, Thursday
  • Amazon, Apple earnings, Thursday
  • Bank of England rate decision, Thursday
  • US employment, factory orders, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 0.4% as of 12:39 p.m. New York time
  • The Nasdaq 100 rose 0.8%
  • The Dow Jones Industrial Average was little changed
  • The MSCI World Index rose 0.3%
  • Bloomberg Magnificent 7 Total Return Index rose 1.6%
  • The Russell 2000 Index fell 0.9%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.3%
  • The euro fell 0.3% to $1.0820
  • The British pound fell 0.1% to $1.2854
  • The Japanese yen fell 0.1% to 153.98 per dollar

Cryptocurrencies

  • Bitcoin fell 1.2% to $67,175.29
  • Ether rose 0.5% to $3,275.21

Bonds

  • The yield on 10-year Treasuries declined two basis points to 4.17%
  • Germany’s 10-year yield declined five basis points to 2.36%
  • Britain’s 10-year yield declined five basis points to 4.05%

Commodities

  • West Texas Intermediate crude fell 2.3% to $75.42 a barrel
  • Spot gold fell 0.4% to $2,377.33 an ounce

This story was produced with the assistance of Bloomberg Automation.

©2024 Bloomberg L.P.


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