The U.S. stock market seems set to move higher this morning, as a new week on Wall Street commences. In the days ahead, investors will receive a couple of important economic releases, as well as a barrage of second-quarter corporate profit reports. Over the weekend, of course, President Biden announced that he will no longer seek reelection. This development creates further uncertainty for traders, and may well lead to additional market volatility. As we were writing this piece, the S&P 500 Index futures were up roughly 31 points (0.55%) in early morning trading, with the NASDAQ index futures ahead by a larger margin.
In the corporate sector, the second-quarter earnings season is now under way. Tomorrow, we will hear from Alphabet (GOOG). Here, investors will want to see the technology giant continue to advance its AI (artificial intelligence) capabilities, while expanding its cloud solutions business. Tesla (TSLA) will also weigh in with its results. Investors will be looking to see how the electric vehicle manufacturer is progressing in its efforts to ramp up production and deliveries in a competitive price environment. Plans for an autonomous taxi venture may also be of importance.
Technically, the stock market has done well so far this year. However, the landscape seems to be gradually shifting. Specifically, traders have started to move capital out of the technology sector and into overlooked parts of the market. This development may be happening for a variety of reasons. For one, investors have been overweighted in technology stocks and in speculative issues in the AI arena. This narrow focus has led to uneven market conditions, extended equity prices, and elevated valuations when compared to the usual measures of earnings, revenue growth, and such. As a result, it is not surprising that investors would start to search for opportunities outside the technology area and its market-dominating names, such as smaller stocks and issues with low price-to-earnings multiples. Further, the interest-rate outlook is finally softening and there are some equities that ought to benefit, as a result. For example, the financials and industrials, which require access to capital, should see some improvement. Investors and analysts will be adjusting to these shifting trends, always a challenging process.
In economic news, no major reports are scheduled for this morning. However, tomorrow existing home sales for the month of June will be published, followed by the new home sales figures on Wednesday. On Thursday, we will get a look at the initial estimate for second-quarter GDP (Gross Domestic Product). Analysts currently expect that the economy expanded at an annualized rate of 1.9% during the quarter, which would be an improvement from earlier this year. Finally, on Friday the PCE (Personal Consumption Expenditures) Price Index for June will be reported. Most investors think the numbers will show that prices rose about 2.5% during the past month, on a year-over-year basis. If this turns out to be the case, it would suggest that inflation continues to moderate, and would support the call for lower interest rates. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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