Last week’s market and economic data key points:
- CrowdStrike (cybersecurity firm) experienced a global IT outage
- Trump’s comment about Taiwan caused AI chip stocks sell off
- Nvidia shares wash out $340B of its valuation
- Giant funds sell their Nvidia shares
- Netflix posts $9.6B revenue but stock barely moves on news
- Johnson & Johnson beats sales
- UnitedHealth rises after profit beats estimates
- U.S. 10-Year Treasury yield rises to 4.24%
- Oil sinks to 4-Weeks low as supply fears ease
- Crypto currencies on demand
- US Jobless claims rise more than expected
- Mortgage rates at 4-month low (Housing rebound)
- Canada inflation rate unexpectedly slows in June
Table of Contents
Last Week’s Reports
Economic Reports
On Thursday, data showed that manufacturing activity in the US expanded more than expected in July amid a surge in new orders.
The latest weekly jobless claims also jumped more than anticipated, indicating that the labor market remains tight.
Retail sales in the US stalled in June from May, following an upwardly revised 0.3% rise in the previous period. (Sales at gasoline stations were down 3% and those for autos declined 2.3%).
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances declined to 6.87% in the week from 7% in the previous period. It is the biggest decline in borrowing costs in about four months and the lowest rate since the second week of March.
As the mortgage rate declined in the United States, building permits rose by 3.4% in June (the highest in three months and above market expectations).
San Francisco Fed President Mary Daly said that despite recent improvement in inflation data, she is still looking for more confidence that inflation is moving sustainably toward the central bank’s 2% target.
Fed Governor Christopher Waller also said he thinks rate cuts are near but stressed that he will be watching upcoming data closely in the meantime.
Earning Reports
BlackRock (BLK) reported strong second quarter earnings on Monday. Revenue growth of 8% YoY. Also, adjusted EPS increased 12% YoY to $10.36, beating the forecasts. Meanwhile, BlackRock paid the cash dividend per share of $5.10 and repurchased shares worth $500 million in the quarter.
On Monday, bank earnings continued with The Goldman Sachs (GS), also joining the trend of beating profit and revenue estimates with better-than-expected fixed income results and smaller than expected loan loss provisions.
On Tuesday, Morgan Stanley (MS) and Bank of America (BAC) boarded the bank earnings. Morgan Stanley hit profit and revenue estimates with its 2Q financials on the back of stronger than expected trading and investment banking performance. Bank of America also exceeded estimates with second quarter revenue and profit that were fueled by rising investment banking and asset management fees.
UnitedHealth (UNH) posted revenues of $98.86 billion for the quarter ended June, surpassing estimates. This is a strong report compared to last year’s revenues of $92.9 billion. Also, the company has exceeded revenue estimates four times over the last four quarters.
Johnson & Johnson’s (JNJ) 2Q earnings came in at $2.82 per share, which beat the estimate of $2.71. Also, earnings rose 10.2% from the last year period. Meanwhile, adjusted earnings reported of $1.93 per share, down 5.9% year over year.
Netflix (NFLX) has managed to grow its subscriber base and added 8 million net users in Q2. Importantly, it is also expanding its operating margins. Earnings arrived at $4.88 a share, a solid 48% rise year over year, netting the company a profit of $2.15 billion. Looking ahead, Netflix sees a big rise in profits of $5.15 a share for the September quarter. However, Wall Street’s estimates for $4.74.
Indices
S&P 500 (SPX) hit a record high on Tuesday July 16, then had a rough two days. With this, the Market volatility index (VIX) which can be viewed as a measure of uncertainty, is above 16 (its highest level since April). As we mentioned in last week’s MM the RSI indicator of SPX was in an overbought zone and this decline was anticipated. In addition, as we expected, SPX hit the strong 0.618 Fibonacci extension which is a solid resistance zone, and the price started a correction. For now, the nearest support zone is around 5,445.
The Nasdaq Composite (COMP) saw its worst day in two years. AI chip stocks declined because there were new worries about the safety of Taiwan and the global supply chain for chips. And finally, on Friday, the world woke up to a software failure that took down airlines, payment systems, personal computers, and corporate websites. Some hospital systems were forced to cancel procedures requiring anesthesia. The reason was CrowdStrike (a cybersecurity firm) experienced a global technology outage due to a faulty software update. Elon Musk called it the ” biggest IT fail ever.”
Stocks
Stock Market Sector’s Weekly Performance:
Source: Finviz
As you see, this was a terrible week for tech and AI stocks, any way you slice it. However, tech earnings are around the corner which could quickly change the narrative. On the other hand, they could deepen the worries about growth, sending the market into a deeper funk.
Stock Market Weekly Performance:
Source: Finviz
Trump comments on a potential tougher stance against Taiwan spooks investors, causing fear in mega cap tech, chip and AI stocks.
This comment led to an abrupt decline of 8% in shares of Taiwan TSMC (known as Taipei’s “crown jewel”). The comments not only sparked worries for Taiwan, but the impact of it was also seen in the stock of TSMC buyers (AI stocks), such as Apple (AAPL), Nvidia (NVDA) and Advanced Micro Devices (AMD) that rely on the company for essential components. Also, concerns growing over the fragility of the semiconductor supply chain.
As you can see NVDA started a time-based correction, is this the end of the bullish trend?! To answer this question, we must wait and see how the price will change. For now, there are support levels in $117, $107 and $90.
Berkshire Hathaway (BRK-A) sold about 33.9 million shares of Bank of America for around $1.48 billion over multiple transactions this week.
CrowdStrike (CRWD) stock fell 11% on Friday, as investors unloaded the shares in response to news that a flawed software update by the cybersecurity company led to computer problems that temporarily rendered huge numbers of computers unusable. The company took responsibility for sending an update that break IT systems using Microsoft Windows.
Commodity
Weekly Performance of CFDs on Gold, Silver, WTI and Brent Oil:
Source: Finviz
WTI crude futures declined over 3% to settle at $79.922 per barrel on Friday and marked the second consecutive weekly loss. Market sentiment was influenced by renewed hopes of a ceasefire in Gaza. The ongoing conflict in Gaza had previously led investors to factor in a risk premium for oil, as tensions posed a threat to global supplies.
Also, a stronger dollar and concerns over China’s economic outlook exerted downward pressure on prices, offsetting a tighter supply scenario. Furthermore, recent data showed China’s economy grew by a slower-than-expected 4.7% in the Q2, heightening concerns about oil demand from the world’s top importer.
These factors diminish demand for dollar-denominated oil from buyers using other currencies.
Forex
Weekly Performance of Major Foreign Exchange Pairs:
As you see, the dollar index climbed last week. Also, that was its first weekly gain in three, bouncing back on recent U.S. economic data and concerns about the technology outage.
- USD/JPY: The annual inflation rate in Japan stood at 2.8% in June, holding steady for the second straight month (highest level since February)., accelerating for the second month and keeping market expectations that the central bank could raise interest rates soon.
- EUR/USD: The ECB decided to keep interest rates unchanged in July, as expected, as current data supports their previous inflation outlook.
- GBP/USD: Annual inflation rate in the UK was steady at 2% in June, the same as in May and holding at 2021-lows (although forecasts were pointing to 1.9%).
Crypto
Crypto Market Weekly Performance:
Source: quantifycrypto
As we discussed the bullish signals on BTC at a price of $59,700 last week, Bitcoin, broke the trend line, then surged to $67,567 (its highest mark in a month) which signals a potential shift in market dynamics.
This rally is motivated by an important key factor: US Bitcoin ETFs Now Hold More Than 900,000 BTC.
US-traded spot Bitcoin ETFs have attracted more than $2 billion in inflows since early July. The past week alone saw a strong cumulative net inflow of more than $1 billion across the 11 funds, marking the third consecutive week of net inflows.
Next Week’s Outlook
Economic Events
In the United States, key highlights will include the advance Q2 GDP growth rate, PCE inflation, and personal spending and income. Additionally, other notable releases will feature the S&P Global Manufacturing and Services PMI, durable goods orders.
In the US, the Q2 advance estimate for GDP growth is expected to show the economy expanded 2% (faster than 1.4% in Q1)
The June PCE price index is also due, with forecasts pointing to a small uptick of 0.1% in the general index.
Elsewhere in America, the Bank of Canada is expected to lower interest rates by 25bps, following a similar move in June.
Earning Events
Earnings season will hit a crescendo with over thirty companies boasting market caps exceeding $100 billion set to unveil their financial reports.
On the earnings front, Alphabet, Tesla, Verizon, Visa, Coca-Cola, Texas Instruments, GE, GM, Philip Morris, Comcast, UPS, Lockheed Martin, IBM, AT&T, Union Pacific, Honeywell and Exxon Mobil are due to report quarterly results.
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