The U.S. stock market is set to move sharply lower at the opening bell this morning, after last week’s dismal performance. Investors, reacting to the soft July employment report, now seem to be worried that the economy is slowing and that the Federal Reserve is waiting too long to reduce interest rates. In addition, a few large technology companies recently posted disappointing results, fueling fears that spending on AI (artificial intelligence) is becoming excessive and may not deliver returns. As we were publishing this report, the international markets were down considerably, and the S&P 500 Index futures were off roughly 150 points (down 2.80%) in pre-market trading.
Few notable economic items are scheduled for this week. However, later this morning the ISM (Institute for Supply Management) Services Index will be published. This report, which measures the health of service-related industries, may warrant some attention. On Thursday, the latest weekly initial jobless claims will be released. Traders may closely follow this item, given renewed concerns about the nation’s labor market.
In the corporate arena, the second-quarter earnings season continues to take shape. This week, we will hear from a number of widely-held companies, including Wynn Resorts (WYNN), The Walt Disney Co. (DIS), and Eli Lilly (LLY). It should be noted that investors have not been kind to companies that fail to meet expectations. The fact that many stocks have been trading at elevated multiples may be playing a role in this regard.
Technically, the stock market has started to display weakness. Last week’s selling pushed the broader S&P 500 Index decisively below its 50-day moving average (located at the 5,450 level). This development may be seen as a sign of softness by traders that follow various technical systems. From a sector perspective, the popular technology stocks have lost considerable ground lately and are no longer providing market leadership. Instead, investors, in anticipation of lower interest rates, have started to rotate capital into other equity sectors (utilities, healthcare, financials, etc.). However, it is not clear that the major averages can meaningfully advance without participation from the large technology stocks. Looking ahead, it remains to be seen if the current market pullback will develop into a larger correction. The CBOE Volatility Index (VIX), a measure of sentiment, is currently moving higher. Traders believe that elevated readings on the VIX show that sentiment is becoming overly bearish, and that a change in market direction might soon occur. – Adam Rosner
At the time of this article’s writing, the author had positions in Walt Disney (DIS).
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