The S&P 500 and Nasdaq Composite extended their losses, as investors continued to pull back from leading technology stocks. This market shift, influenced by disappointing earnings in the tech sector and a stronger-than-expected GDP growth report, signals a potential correction and rotation within the market. Meanwhile the Dow Jones Industrial Average managed a modest gain,
The S&P 500 and Nasdaq Composite extended their losses, as investors continued to pull back from leading technology stocks. This market shift, influenced by disappointing earnings in the tech sector and a stronger-than-expected GDP growth report, signals a potential correction and rotation within the market. Meanwhile the Dow Jones Industrial Average managed a modest gain, reflecting a mixed investor sentiment. The market's current dynamics suggest a cautious outlook, with a noticeable shift in focus from high-growth tech stocks to smaller-cap and more cyclical sectors.
Key Takeaways:
Tech Stocks Continue to Slide: The Nasdaq Composite fell 0.93% to close at 17,181.72, driven by a significant selloff in major tech stocks. Nvidia dropped 1.7%, Advanced Micro Devices shed over 4%, and Microsoft declined 2.5%. The VanEck Semiconductor ETF (SMH) also fell nearly 2%, indicating a broad retreat in the tech sector.
S&P 500 and Nasdaq Declines Amid Economic Data: The S&P 500 decreased by 0.51%, ending the session at 5,399.22, as investors reacted to a stronger-than-expected second-quarter GDP growth rate of 2.8%, surpassing the anticipated 2.1%. This movement highlights a shifting investor sentiment towards non-tech sectors.
Dow Jones Outperforms: The Dow Jones Industrial Average rose 0.2%, or 81.20 points, to close at 39,935.07. The index surged nearly 585 points at session highs, showcasing a divergence in performance among major indices.
Rotation into Small Caps: The Russell 2000 Index, representing small-cap stocks, gained 1.26%, indicating a growing investor interest in smaller, potentially undervalued companies as they rotate out of the high-flying tech sector.
European Markets React to US Tech Weakness: The Stoxx 600 in Europe fell 0.72%, with technology stocks leading the decline, down 2.75%. The FTSE 100 Index rose slightly by 0.40%, while the CAC 40 Index dropped 1.21%. Despite the broader decline, Unilever climbed 6% after raising its full-year margin guidance, even though it missed sales growth forecasts. Additionally, Stellantis reported a 48% drop in first-half net profit, affecting shares of automakers.
Asian Markets Hit Hard by Tech Selloff: Japan's Nikkei 225 dropped 3.28%, marking its seventh consecutive day of losses and closing at 37,869.51. Major stocks like SoftBank Group and Renesas Electronics fell 9.39% and over 14%, respectively, amid concerns over potential monetary policy tightening by the Bank of Japan. South Korea's Kospi also declined by 1.74% to 2,710.65, led by a drop in heavyweight SK Hynix, down 8.87%. Meanwhile, China's CSI 300 fell 0.55% to 3,399.27 as the People's Bank of China cut its medium-term facility lending rate to 2.3%, aiming to stimulate the economy.
US GDP Growth Exceeds Expectations: The US economy grew at an annualised rate of 2.8% in the second quarter, driven by robust consumer spending and private inventory investment. This figure outpaced the forecasted 2.1% growth, signalling strong economic resilience. In other economic news Thursday, the Labour Department reported that initial jobless claims totalled 235,000 for the week ended July 20, down 10,000 from the previous week and exactly in line with the Dow Jones forecast. Continuing claims, which run a week behind, edged lower to 1.85 million.
Crude Oil Prices Recover: US crude oil rose nearly 1%, closing at $78.28 per barrel, supported by stronger-than-expected economic growth and a decrease in crude and gasoline inventories, indicating rising demand. Brent oil reached $82.37 per barrel, up 0.81%. Year to date, Brent oil is up by 6.9%.
FX Today:
EUR/USD Outlook Remains Cautious: EUR/USD has shown signs of recovery after two consecutive days of losses, closed around 1.0850. This movement followed a test of the critical at 1.0820, which continues to act as a key support level. The pair faces further downside risks if it breaches this level, with the next support at the June low of 1.0666 and potentially down to the 2024 low of 1.0601. Resistance on the upside is observed at 1.0948, followed by 1.0981 and the crucial 1.1000 threshold.
GBP/USD Under Pressure: The GBP/USD pair fell below 1.2860, dropping 0.43% to trade at 1.2850. This decline followed a daily high of 1.2913, influenced by stronger-than-expected US GDP growth and weaker UK data. The pair's immediate resistance lies at 1.2880, with further barriers at 1.2900 and 1.2940. Support levels are seen at 1.2840, followed by the 50-day moving average at 1.2773.
EUR/GBP Gains on BoE Rate Cut Bets: The EUR/GBP pair rose to around 0.8440, gaining as the market priced in potential rate cuts by the Bank of England. The pair remains significantly below the 200-day Exponential Moving Average at 0.8545, despite Thursday's gains, which represented one of its best single-day performances in 2024.
AUD/USD Declines on Chinese Economic Concerns: The Australian Dollar fell to near 0.6550 against the USD, pressured by ongoing economic challenges in China and falling iron ore prices. The AUD/USD pair's immediate support is at the July low of 0.6515, with further support at 0.6465 and the 2024 bottom of 0.6360. Resistance levels include the 200-day SMA at 0.6585 and the July top at 0.6798.
USD/CHF Down Despite Strong US GDP: The USD/CHF pair closed lower by 0.40% at around 0.8810, continuing its downward trend despite robust US GDP data. The pair remains below key moving averages, with support levels now revised to 0.8750 and 0.8730, while resistance levels are set at 0.8800, 0.8830, and 0.8850.
Gold Faces Selling Pressure: Gold prices continued to decline, trading near a multi-week low of $2,357.92. The metal's bearish trend is underscored by technical indicators showing negative momentum, with support levels at $2,34, $2,332 and $2,318. Resistance levels are noted at $2,366, $2,381, and $2,395, as gold struggles to maintain higher price levels amidst market uncertainty.
Market Movers:
Dexcom Suffers Against Estimates: Shares of Dexcom plunged more than 35% after the medical device company revised its full-year revenue guidance to $4 billion - $4.05 billion, down from previous estimates. The second-quarter revenue of $1 billion also missed the consensus estimate of $1.04 billion, leading to a sharp decline in stock value.
Ford Motor Falls Short: Ford shares tumbled 18.4% after the automaker reported second-quarter earnings that fell short of Wall Street expectations. The company posted adjusted earnings per share of $0.47, significantly below the consensus forecast of $0.68. However, automotive revenue slightly exceeded expectations, coming in at $44.81 billion compared to the estimated $44.02 billion.
ServiceNow Surges After Forecast: Shares of ServiceNow surged 13% following stronger-than-expected earnings. The software company also raised its annual subscription revenue forecast, driving investor optimism. This marks ServiceNow's best performance since 2019, further pushed by the resignation of COO CJ Desai after an internal investigation.
Edwards Lifesciences Underperforms: The stock plunged over 31% after the company slashed its forecast for transcatheter aortic valve replacements, a critical product line. Despite reporting second-quarter adjusted earnings of $0.70 per share, slightly above expectations, the company projected lower-than-expected revenue for the upcoming quarter, ranging between $1.56 billion and $1.64 billion.
Deckers Outdoor Jumps After Earnings: The footwear company's stock jumped 8% after reporting fiscal first-quarter earnings of $4.52 per share on revenues of $825 million, surpassing analysts' expectations of $3.48 per share on revenues of $808 million. This significant earnings beat highlights Deckers' robust performance in a competitive market.
Coursera Outperforms Revenue Expectations: The online education platform saw its shares rise 16% following a strong second-quarter performance. Coursera reported revenue of $170 million, beating analysts' estimates of $164 million, although it posted a loss of $0.15 per share, against expectations for a one-cent profit.
Viking Therapeutics Succeeds in Clinical Trials: Viking Therapeutics' shares surged over 28% after announcing that its experimental obesity treatment, VK2735, will progress to a phase 3 clinical trial. The company also plans to begin phase 2 trials for an oral version of the drug in the fourth quarter.
Honeywell Misses On Results: Shares of Honeywell fell more than 5% after the industrial giant's full-year earnings outlook missed analysts' expectations. The company forecasted third-quarter earnings between $2.45 and $2.55 per share, lower than the StreetAccount estimate of $2.58 per share.
Lululemon Tumbles After Downgrade: The athletic apparel retailer's shares declined more than 9% following a downgrade which shifted its rating from "buy" to "neutral." The firm cited a potential slowdown in the category and increased competition as factors that could impact Lululemon's future performance.
As the markets navigate through a period of significant volatility, the recent declines in major technology stocks and the mixed economic signals present a complex landscape for investors. The shift from megacap tech to small-cap stocks and more cyclical sectors suggests a reallocation of investment strategies, likely driven by profit-taking and concerns over valuation. Despite a stronger-than-expected US GDP growth rate and resilient small-cap performance, the broader market sentiment remains cautious, with significant movements in key sectors and stocks indicating both opportunities and risks. As we move forward, the focus will likely remain on sector rotations, corporate earnings, and macroeconomic indicators that could shape the trajectory of the markets in the coming months.
