Investors are bracing for an eventful week. A major tech company is about to report earnings. The US Federal Reserve is about to wrap up its policy meeting and this could impact the direction of the US stock market. After recent volatility
After a strong run, tech stocks have slowed in the second half of July, with the index and the Nasdaq Composite posting their biggest one-day declines since 2022 on Wednesday, hurt by weaker-than-expected earnings reports from Tesla and Alphabet.
Earnings announcements from Microsoft, Apple (NASDAQ:), Amazon.com, and Meta Platforms are all highly anticipated. That’s because missed earnings could further challenge market confidence. Although the S&P 500 is only 5% below its peak and up 14% this year, there are concerns embedded in Wall Street’s earnings growth forecasts. Are we being too optimistic?
The Federal Reserve meeting, which ended on Wednesday, was also a point of interest. Investors are looking for clues about the possibility of a rate cut, which is expected to begin in September.
In addition to employment information as well as the monthly employment report at the end of the week, it will be closely scrutinized for signs of a slowdown in the labor market.
Allspring's senior portfolio manager highlights key market turning points, noting two concerns about high valuations in tech stocks and the possibility that the Fed may not be able to manage the economic slowdown smoothly.
The recent trend shows a shift in investor interest from tech giants to undervalued market sectors such as small-caps and financials, with the Russell 1000 Value Index up more than 3% this month, while the Russell 1000 Value Index is up more than 3% this month, while the Russell 1000 Growth Index is down nearly 3%.
The Russell 2000 index, which tracks small-cap stocks, is up nearly 9% for the month, outpacing the S&P 500's loss of more than 1%.
Even a strong performance may not lift the broader market from its immediate decline, noted Truist’s chief market strategist, who believes the recent pullback in technology stocks means earnings-related gains could encourage investors to sell.
Market expectations of the Fed’s monetary policy are heavily influenced by economic indicators, with the CME’s FedWatch tool showing a certainty of a rate cut by September. A total of 66 basis points of rate cuts by year-end.
Upcoming employment data will be key to either supporting or challenging these expectations.
The president of ValueWorks LLC offered his view that the recent sell-off could be a natural correction within the ongoing bull market. This suggests that growth stocks could lead to new market highs in the future.
Reuters contributed to this article.
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