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There is a lot of news that will be driving today's trading session, and for most participants it begins with yesterday's news that the Nasdaq suffered its worst decline (-3.6%) since October 2022 while the S&P 500 (-2.3%) saw a 356-day streak of not suffering a decline of 2% or more come to an end.
That all happened against a backdrop of growth concerns and a sell-off in the mega-cap stocks after both Tesla (TSLA) and Alphabet (GOOG) failed to live up to investors' high expectations, which in turn fueled some added angst about other mega-cap stocks suffering a similar fate when they report results.
From a market-cap standpoint, there were no heroes in yesterday's trade. It was a broad-based sell-off that saw the Russell 2000 decline 2.1% and the S&P Midcap 400 drop 2.0%.
Things have calmed down a bit this morning, but there hasn't been a sense of urgency to buy the dip, which has been more than "a dip." The Nasdaq Composite has fallen 7.1% from its July 11 high while the Vanguard Mega-Cap Growth ETF (MGK) has fallen 8.1% from its July 10 high.
This seeming lack of urgency to buy into the weakness has left the market in a guarded state, particularly since it has been accompanied by a stark pickup in hedging interest to guard against further downside risk. That interest has manifested itself in the CBOE Volatility Index, which spiked 22.6% yesterday and is up nearly 50% from its low on July 12.
Currently, the S&P 500 futures are down one point and are trading in-line with fair value, the Nasdaq 100 futures are up four points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are up 38 points and are trading 0.1% above fair value.
There is too much earnings news to cover fully in this space. Some stocks, like IBM (IBM), Service Now (NOW), Chipotle Mexican Grill (CMG), and Northrop Grumman (NOC), are seeing pre-market gains after their earnings reports. Other stocks, like Ford (F), American Airlines (AAL), Las Vegas Sands (LVS), Honeywell (HON), and Southwest Airlines (LUV), are backtracking after their reports.
Southwest Airlines for its part commanded some added attention with an announcement that it will end its open seating policy starting in 2025.
The read-through from the totality of the earnings news is that it hasn't caused a sea-change in sentiment, which can still be labeled as cautious.
The same can be said for this morning's economic data, which was reasonably good but perhaps too good to convince the Fed that it should cut the target range for the fed funds rate at its July 30-31 meeting, as some pundits have been suggesting should happen.
- The Advance Q2 GDP report showed real GDP increasing at an annual rate of 2.8% (Briefing.com consensus 1.9%), following a 1.4% increase for the first quarter. The GDP Price Deflator was up 2.3% versus 3.1% in the first quarter.
- The key takeaway from the report is that it didn't show any breakdown in consumer spending. In fact, consumer spending growth accelerated, increasing 2.3% on the heels of a 1.5% increase in the first quarter.
- Initial jobless claims for the week ending July 20 decreased by 10,000 to 235,000 (Briefing.com consensus 240,000). Continuing jobless claims for the week ending July 13 decreased by 9,000 to 1.851 million.
- The key takeaway from the report is that there hasn't been an alarming jump in initial claims -- a leading indicator -- to even higher levels; therefore, a conclusion will be drawn that the labor market is seeing some normal slowing as opposed to a rapid deterioration.
- Durable goods orders in June sunk 6.6% month-over-month (Briefing.com consensus 0.4%). Excluding transportation, durable goods orders increased 0.5% month-over-month (Briefing.com consensus 0.2%).
- The key takeaway from the report is that the weakness was driven by a large drop in nondefense aircraft and parts orders, which are volatile. An added takeaway is that business spending in June was quite solid, evidenced by the 1.0% increase in new orders for nondefense capital goods excluding aircraft.
Treasury yields had been tracking lower in front of the data, but they have picked up in the wake of the reports. The 2-yr note yield, at 4.36% before the releases, is up to 4.40%, but down two basis points from yesterday's settlement. The 10-yr note yield, at 4.20% before the releases, is at 4.24%, but down five basis points from yesterday's settlement.
The behavior of Treasuries will be watched closely today, but not as closely as the behavior of mega-cap stocks and how that influences the broader market.
