Stocks ended last week on a down note Friday as a global technology outage impacted services including airlines, banks, and healthcare. The problem occurred after a software update glitch by cybersecurity company CrowdStrike caused an outage for companies using Microsoft’s Windows Operating System. Shares of Microsoft only declined less than 1% on the day, while CrowdStrike shares fell over 11%. For the week in total, technology was an underperformer, as investors rotated out of big tech into other sectors of the stock market, resulting in better performance for the Dow Jones Industrial Average and Russell 2000 (a small-cap index), for example.
The tech-heavy NASDAQ Composite shed 3.6% to 17,727 and the Standard & Poor’s 500 Index dropped 2% to 5,505. Both indexes suffered their largest percentage weekly declines since April. On the other hand, the Dow Jones Industrial Average rose .7% to 40,288 and the Russell 2000 added 1.7% to 2,184 last week. Analyst opinions are of course divided whether this rotation and shift will continue, or if big tech is just catching its breath after a strong run before retaking the lead once again. We will get some more flavor on that as we get ready for a diverse batch of earnings this week.
Looking to the week ahead – earnings seasonfor the second quarter of 2024 heats up – with approximately 30% of S&P 500 companies scheduled to report results. Garnering the most attention will be reports from two of the Magnificent Seven – Tesla and Google parent Alphabet – both of which announce their results on Tuesday.
Other companies scheduled to report include Verizon Communications, United Parcel Service, Chipotle Mexican Grill, General Motors, American Airlines, Ford Motor, Spotify Technology, IBM, General Dynamics, Coca-Cola, Colgate-Palmolive, Visa, AT&T, 3M, and Bristol-Myers Squibb.
Looking at aggregate earnings results so far, according to FactSet: For the second quarter of 2024, with 14% of Standard & Poor’s 500 companies reporting actual results, 80% have reported a positive EPS (Earnings Per Share) surprise and 62% have reported a positive revenue surprise. The blended year-over-year earnings growth rate for the S&P 500 is expected to come in at 9.7%
Also, this week the economic data point to watch is the Personal Consumption Expenditures price index for June, scheduled for release by the Bureau of Economic Analysison Friday morning. Expectations are for a 2.4% year-over-year increase. This is the Federal Reserve’s preferred read on inflation, and a key factor for them in determining monetary policy and the level of interest rates.
Regarding interest rates, financial markets are only putting a very small chance for a July rate cut at the Federal Reserve’s policy meeting later this month. However, markets are pricing in approximately a 94% probability the Fed will cut rates at their September meeting, according to CME FedWatch. Rising optimism for a rate cut this year has recently been supporting cyclical and smaller capitalization companies.
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All the best – Southport Station Financial Management, LLC