Nasdaq Drops 220+; Mixed U.S. Stocks; Microsoft Falls ~4% AH
On July 30, the U.S. stock market experienced a mixed day, with the three major indices closing in opposite directions, influenced significantly by a sharp decline in chip stocks, particularly Nvidia. The Nasdaq Composite index, which is heavily weighted by technology stocks, saw an open that quickly turned into a loss, ultimately closing down by more than 1%. This cautious sentiment in the market can be attributed to the anticipation of the upcoming Federal Reserve meeting and the recent release of crucial earnings reports, while geopolitical tensions continued to add volatility to the situation.
By the end of the trading session, the Dow Jones Industrial Average gained 203.40 points, ending at 40,743.33, reflecting a 0.50% increase. In contrast, the S&P 500 index dropped by 27.10 points to close at 5,436.44, marking a 0.50% decline. The Nasdaq, heavily impacted by the weak performance of tech stocks, dropped 222.78 points to finish at 17,147.42, which equates to an approximate 1.28% fall. Nvidia, a key player in the semiconductor space, plummeted by 7.04%, trading at $103.73, contributing to a 3.88% decline in the Philadelphia Semiconductor Index.
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The situation with Microsoft unveiled significant challenges the tech giant faces. Following the release of their quarterly earnings, Microsoft revealed that its Azure cloud service saw a slowdown in growth during the fourth fiscal quarter. While overall revenue increased by 15% to $64.7 billion and the adjusted earnings per share was at $2.95, slightly above market expectations, the growth rate for Azure dropped to 29%, down from the previous quarter's 31%. This news led to a nearly 4% drop in after-hours trading, painting a somber picture for investors hoping for aggressive growth from key players in the technology sector.
Adding to the pressures faced by Microsoft were recent underwhelming performances from other tech giants such as Alphabet, Google's parent company, and Tesla. These results have heightened concerns about the profitability and sustainability of heavy investments in artificial intelligence (AI) by technology companies. In fact, since reaching a historical peak on July 10, the Nasdaq has seen a cumulative drop of about 8%. Interestingly, during this time, small-cap indices like the Russell 2000 and the S&P MidCap 400 have outperformed both the S&P 500 and the Nasdaq, achieving the largest outperformance margins in years.
Investigating deeper into market behaviors, several strategists, including Savita Subramanian from Bank of America, noted that instances of the S&P 500 index dropping 5% or more tend to occur three times on average per year since 1936, with at least one instance of a 10% decline annually. Nonetheless, she and her team opined that a comprehensive bear market is unlikely this year, given that only 50% of signals that typically precede a peak in the S&P 500 index have triggered. They also noted a potent opportunity for substantial returns exists within stocks that distribute dividends and traditional capital expenditure beneficiaries.
In terms of economic indicators, data released on the same day highlighted an unexpected increase in job openings for the month of June, running counter to recent trends showing a gradual softening labor market. According to the Job Openings and Labor Turnover Survey (JOLTS) published by the Bureau of Labor Statistics, the number of job vacancies was adjusted from 8.23 million to 8.18 million, with the median forecast from analysts anticipating 8 million openings.
Furthermore, the Consumer Confidence Index, reported by the Conference Board, exhibited a rise from a revised 97.8 in June to 100.3. This rise reflects an increase in optimism among consumers regarding future economic conditions—the expectations index for the next six months rose to 78.2, the highest level since January. Notably, the share of consumers expecting an improved business environment reached its highest level since the beginning of the year.
As the Federal Reserve commenced a two-day policy meeting on July 30, market participants were eager to glean insights from the subsequent meeting outcomes scheduled for July 31. This nervousness was compounded by speculation that Fed Chair Jerome Powell might indicate potential timelines and frequency for future interest rate cuts. According to the CME Group's FedWatch Tool, traders have priced in a 100% probability of a rate cut in September. Nathan Sheets, Citigroup's global chief economist, reflected on the inflation data being encouraging while also noting the evident slowing down of the U.S. economy. He suggested that the risk balance had shifted significantly compared to four months prior and that clearer indications might emerge regarding a potential September interest rate cut.
Turning to specific stocks, Pfizer reported better-than-expected earnings per share and revenue for the second quarter, resulting in a rise of 2.15% in its stock price after the announcement of an upgraded full-year guidance. Conversely, Procter & Gamble faced a surprising decline in second-quarter sales, leading to a sharp drop of 4.84% in its stock value. Merck & Co. saw an alarming decline of 9.81%, attributing the drop to revised earnings forecasts primarily influenced by one-time expenses resulting from the acquisition of EyeBio. However, PayPal bucked the trend with its stock climbing 8.59% after revising its full-year adjusted earnings forecast upward in anticipation of increased consumer spending due to the back-to-school and holiday shopping seasons.
In the commodities market, gold prices showed an uptick, with COMEX gold futures rising by $26.4 per ounce to settle at $2,451.90, marking a 1.09% gain, indicating a safe-haven appeal amid market uncertainty.
Meanwhile, international oil prices mirrored the concerns expressed in the stock market, with West Texas Intermediate light crude oil futures falling by $1.08 to settle at $74.73 per barrel—a decline of 1.42%. London’s Brent crude oil also witnessed a dip of $0.98, closing at $78.07 per barrel, down 1.24%. This decline reflects a broader trend that investors are wary of, especially considering the economic indicators and geopolitical tensions affecting global markets.
Later in the day, reports emerged from Sky News detailing a military strike by Israel in the southern suburbs of Beirut, targeting a commander of Hezbollah, Fouad Shoukair, regarded as a close advisor to Hezbollah leader Hassan Nasrallah. Israeli forces had previously assessed Shoukair as having commanded the group’s precision missile project. Following a rocket attack on Israeli-controlled areas in the Golan Heights on July 27, the military action further escalates regional tensions, although the details surrounding the strike remain unverified.
As geopolitical dynamics continue to play a pivotal role in market movements, investors appear cautiously optimistic, banking on potential clues from the Federal Reserve regarding interest rate cuts as the week unfolds. The ongoing market fluctuations underscore the complex interplay between economic indicators, corporate performance, investor sentiment, and geopolitical uncertainties, marking a challenging yet intriguing landscape for market participants.