July 31, 2024

After opening modestly higher, the market went into one of those – “sell large technology and buy the smaller stocks”, which resulted in a pattern that has become more frequent during the second half of the month. And that is – Dow and Russell 2000 Index of small stocks up while the S&P and Nasdaq got clobbered once again.

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The Dow finished with a strong gain of 203 to 40,743 led by the financials such as AXP, GS, TRV in addition to MCD and UNH. It was able to shrug off large earnings-related declines in MRK and PG.

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The S&P got rocked as 6 out of the Magnificent 7 got clobbered (with the exception of AAPL) and ended down by 27, which was off of its low of worse than 40 in the middle of the session.

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And sure enough it was the Nasdaq that got hit the most as the largest tech stocks got blasted once again and it ended down by 222 to 17,147.

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The Russell 2000 Index of small stocks made a small gain of 8 to 2213 as smaller bank shares did well. It is the market leader this month with a gain of almost 10%.

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And the VIX continued to advance and is now up to 17.69 on the overall market weakness these past couple of weeks.

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And once again, two of every three stocks within the S&P advanced which once again shows the outsized influence of the larger technology members, even though it is narrowing relative to the rest of the market.

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Thankfully, the market is nicely higher today with all of the large technology issues reversing to the upside for a change and let’s hope that Fed Chair Powell does not say anything to messes this up.

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PYPL rose 9% and helped lead the market’s gainers after it topped analysts’ expectations for profit during the spring. It also raised its forecast for profit over the full year.

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JBLU made a 12% gain from low levels after reporting a profit when analysts were expecting to see a loss. The airline also outlined ways it hopes to improve on-time performance and attract customers. But a slide for MSFT nevertheless helped drag the S&P lower as investors waited for its latest profit report, which arrived after trading finished for the day, and it was a disaster due to a shortfall in its Azure business. The stock got as low was 389 in the aftermarket but is trading better than that in the pre-market, but still lower and hopefully the other three Mag 7 stocks can do better – META tonight and AAPL, AMZN tomorrow night.

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Helpfully for the market, other stocks have been rising up to cushion some of Big Tech’s recent softness, including smaller stocks and companies whose profits are closely tied to the strength of the economy. They rallied on hopes that inflation is slowing enough to get the Federal Reserve to soon begin cutting interest rates. On the other hand, more than 40% of small-cap companies are not making any profits.

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As mentioned above, MRK did weigh on the Dow as it gave a forecast for profit this year that fell short of analysts’ expectations, partly because of costs related to its buyout of Eyebiotech.

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PG also slid after beating forecasts for profit in the latest quarter but falling short on revenue. It was hurt by the effects of shifting foreign exchange rates on its international sales, and it expects that to remain a challenge in its upcoming fiscal year.

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No one expects the Fed to cut interest rates today at the 2pm announcement, but the widespread expectation is that it will do so at its next meeting in September.

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Expectations for a soon-to-be easier Fed have sent yields tumbling in the bond market, and they eased further Tuesday. The yield on the 10-year Treasury fell to 4.14% from 4.17% late Monday and from 4.70% in April.

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Yields got a brief bump in the morning after a couple reports on the economy came in stronger than expected, as the June JOLTS report showed that 8.18 million job openings were there. That is a good signal for workers, but too much strength could put upward pressure on inflation.

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A second report showed that July Consumer Confidence improved by more than expected, up to 100.3. There, too, the hope is for a “Goldilocks” type of reading that is neither so hot that it raises fears about reaccelerating inflation nor so cold that it warns of a possible recession.

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In stock markets abroad, indexes were mixed across Asia and Europe ahead of decisions by central banks there that could shake things up.

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Japan’s Nikkei 225 added 0.1% ahead of a meeting by the Bank of Japan, where the expectation is for an increase in interest rates.

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The FTSE 100 in London slipped 0.2% ahead of a decision by the Bank of England that could feature a cut in rates.

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Indexes were stronger in continental Europe after a report indicated that economic growth was a little stronger than expected in the second-quarter among the 20 countries that use the euro currency, according to official figures released Tuesday by European Union statistics agency Eurostat.

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Earnings reports are important this week as four of the Mag Seven report and considering how soft they have been lately, if they do not do better on this, then there are going to be real problems with them going forward, and the lineup is as follows: yesterday – LSCC, CHK lower in addition to Dow components PG and MRK while PYPL, BLUE, PFE, SWK, HOLX were higher; today: - Dow component MSFT lower in addition to PINS, FSLR, ANET, LYV, INFA, MAR, BG while AMD, SBUX, EA, MDLZ, MTCH, FRSH, MA are higher; tonight - – META, QCOM and ARM; Thursday – AAPL and AMZN.

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Economic reports will have: yesterday – July Consumer Confidence increased to 100.3, June JOLTS jobs opening report rose to 8.18 million, CaseShiller May Home Price Index rose to a record high with only a 0.3% gain; today – June pending home sales rose by 4.8%, results of the latest Fed interest rate meeting at 2pm; Thursday – June construction spending, weekly jobless claims; Friday – June jobs report for which the estimate is 180K versus last month’s 206K, June factory orders.