This week witnessed significant market rotation as investors engaged in a flurry of fund reallocation. Seeking to secure profits from megacap tech stocks, particularly in the wake of a potential interest rate cut by the Federal Reserve, investors shifted their focus to overlooked areas of the market poised for a rebound. Consequently, the Nasdaq experienced a decline of over 3%, ending its six-week winning streak, while the S&P 500 lost 1.5%. In contrast, the Dow saw a 0.7% increase, and the small-cap Russell 2000 rose by 2%.
The anticipation of Donald Trump winning a second presidency, following his acceptance of the Republican nomination at the Republican National Convention, dominated discussions on Wall Street. Analysts and investors spent their July monthly meeting identifying stocks that could thrive under a GOP administration, as well as those that might face challenges. However, the market remains wary of uncertainty, and Trump’s penchant for surprises only exacerbates this sentiment. For instance, his recent comments to Bloomberg Businessweek regarding U.S. ally Taiwan raised questions about his stance on the matter, leading to a decline in Taiwan’s TSMC, the world’s largest contract chipmaker, and the broader semiconductor sector.
On the other side of the political spectrum, doubts persist about Joe Biden’s ability to defeat Trump and serve another four years. Prominent Democrats have begun calling for Biden to step aside and make way for another nominee, although Biden’s camp maintains his commitment to the race. The resolution of this uncertainty would be beneficial for the market.
Another development that garnered attention was activist firm Elliott Management’s acquisition of a significant stake in troubled coffee chain Starbucks. While details about Elliott’s intentions remain scarce, this move aligns with expectations following Starbucks’ disappointing earnings report in April. The stock experienced a nearly 7% increase on Friday, signaling hope for a potential recovery.
Analyzing the performance of the S&P 500, the energy sector emerged as the top gainer, followed by real estate and financials. Conversely, technology stocks led the decline, trailed by communication services and consumer discretionary.
Looking ahead, the upcoming week will witness a few key economic updates, but the focus will primarily be on second-quarter earnings reports. Notable companies set to announce their results include Alphabet (Google’s parent company), Danaher, Ford, Honeywell, and Dover. These reports will provide insights into various sectors, such as artificial intelligence, automotive, and industrial conglomerates, shedding light on market trends and potential investment opportunities.
Additionally, economic indicators to watch include the personal spending and income report, which will feature the core PCE price index, the Federal Reserve’s preferred inflation gauge. The GDP report for the second quarter will also be released, offering a backward-looking assessment of the economy’s performance. Furthermore, the housing market will be in focus with the release of existing home sales and new home sales reports.