Market Review 31st July 2024
Simplify the craziness
DAILY REVIEW
N
3 min read
Global stocks rallied today, first driven by a bounce in the tech-heavy Nasdaq as investors digested the latest earnings reports and later amplified by dovish Fed commentary after Chair Powell said that a rate cut could come as soon as September. Shares of AMD rose 4.5% after the company's earnings results exceeded estimates, helping sentiment around artificial intelligence (AI) and semiconductors improve. Nvidia, the leader in AI development, saw its shares rally 12%. Investors also welcomed reports stating the U.S. will exclude the semiconductor-equipment makers of some countries from export restrictions to China, leading ASML Holding NV to climb 6%. Despite the overall positive performance, Microsoft finished lower after reporting slower cloud growth. Elsewhere, Japanese banks rallied after the Bank of Japan (BoJ) raised its policy rate to 0.2% from the 0%-0.1% range and announced plans to dial back its bond purchases. Additionally, oil prices jumped nearly 5% on the latest ramp-up in Middle East tensions.
Fed Holds Rates Steady, Hints on September Cut
The Fed left its policy rate unchanged today at 5.25% - 5.50%, as expected, but adjusted its statement to reflect the growing chance of a September rate cut. While not committing to one, Chair Powell's commentary confirmed market expectations that the first rate cut is now in sight, triggering a broader rally in both stocks and bonds. With confidence that inflation is moving in the right direction, Fed officials have become more sensitive to downside risks to the labor market, indicating a high likelihood of cutting interest rates twice this year. Since June, inflation has fallen below the Fed's 2.8% year-end projection, and the unemployment rate has risen slightly above the 4.0% forecast. The labor market remains healthy but shows clear signs of cooling, likely leading to further moderation in wage growth, which should help bring services inflation down. Today's slower-than-expected increase in private payrolls as reported by ADP (122,000 vs 150,000 expectation) and the cooling in pay gains for both job-stayers and job-changers align with Fed commentary that labor supply and demand are in better balance, paving the way for less restrictive policy.
Earnings Season in Full Swing
About 120 S&P 500 companies are set to report earnings today and throughout the week, including three of the Magnificent 7 names (Meta, Apple, and Amazon). With over 50% of the S&P 500 companies having reported results, 78% are beating second-quarter earnings, surpassing the 10-year average of 74%. Health care, technology, and financials are standout sectors, driving the S&P 500 earnings to stay on track to rise 9% this quarter, the strongest growth since Q4 2021. Although markets have entered a choppier phase this month due to high expectations, rising corporate profits provide confidence that corporate fundamentals remain healthy. Election-related uncertainty can be a catalyst for volatility, especially as we enter a seasonally more challenging part of the year. However, short-term pullbacks are not expected to change the broadly positive outlook for stocks and the improving outlook for bonds. With inflation moving closer to the Fed’s target, the peak in yields appears to be behind us, the economy continues to expand at a slowing pace, and rising earnings support current valuations, especially for equity market segments that have been left behind.
Advancers and Decliners
Vistra Corp (VST) +14.8%
Constellation Energy (CEG) +12.5%
Match Group (MTCH) +13.2%
Nvidia (NVDA) +12.8%
Broadcom (AVGO) +12.0%
Humana (HUM) -10.6%
Verisk Analytics (VRSK) -8.5%
Bunge Global (BG) -8.1%
Microsoft (MSFT) -1.0%
References
Latest Fed commentary and policy rate details
AMD, Nvidia, and ASML Holding NV stock performance
Bank of Japan's policy rate announcement
Oil prices and Middle East tensions
S&P 500 earnings report analysis
ADP private payrolls report
Semiconductor market news
Tech and financial sector performance
