(Bloomberg) — Stocks were hit by a sell-off in the world’s largest technology companies ahead of key central bank decisions. Bonds and gold rose as traders rushed to safety amid geopolitical risks. Oil remained lower.
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The Israeli army attacked Beirut, targeting a Hezbollah commander, in response to a rocket attack on the Golan Heights on Saturday that killed 12 people. Most stocks in the S&P 500 rose, but renewed technology weakness weighed on the gauge – with Nvidia Corp. decreased by 6%. After destroying the $2.3 trillion Nasdaq 100, investors waited for results from Microsoft Corp., fearing companies are yet to see returns from artificial intelligence. The data will set the stage for reports from other heavyweights this week, with markets also bracing for Wednesday’s Federal Reserve decision.
“If the Fed doesn’t signal a rate cut in September, markets could turn a bit ugly given recent tech weakness – especially if earnings disappoint,” said Tom Essaye in The Sevens Report.
While the Fed is expected to keep interest rates at their highest level in more than two decades, traders will be watching closely for indications that the start of policy easing is near. Leading up to the announcement, data showed US consumer confidence rose on an improving outlook for the economy and employment expectations exceeded expectations.
The S&P 500 fell about 1%. The Nasdaq 100 fell 1.5%. A measure of the “Magnificent Seven” megacaps fell 2.5%. The Russell 2000 of small companies was little changed. Microsoft is investigating outages of some Office applications and cloud services. CrowdStrike Holdings Inc. threw himself into a report. Delta Air Lines Inc. called in a lawyer after a technical glitch. Procter & Gamble Co. went bankrupt after a sales miss. JetBlue Airways Corp. got off to a flying start with a turnaround plan.
The ten-year government bond yield fell by three basis points to 4.14%. West Texas Intermediate crude was hovering around $75.
The yen rose. Bank of Japan Governor Kazuo Ueda will be under scrutiny on Wednesday when he unveils his plans for quantitative tightening and decides on policy rates. The yen’s recent weakness has done more harm than good to Japan’s economy, according to Japan’s newly appointed top foreign exchange official.
*BOJ BOARD MEMBERS DISCUSS RATES INCREASE TO 0.25%: NHK
The continued broadening of this year’s powerful stock market rally depends on what the Fed does and says on interest rates after its two-day meeting concludes Wednesday. Since the last consumer price index print showed signs of inflation cooling, traders have ramped up their rotation from Big Technology stocks into everything from small-cap stocks to value stocks.
If the Fed is about to start a rate-cutting cycle, stock bulls have history on their side. According to calculations by financial research firm CFRA, the S&P 500 Index has risen an average of 5% per year in the six previous hike cycles after the first cut. Moreover, the gains also extended, with the small-cap Russell 2000 Index rising 3.2% 12 months later, CFRA data show.
Goldman Sachs Group Inc. Chief Executive Officer David Solomon said one or two Fed rate cuts are looking increasingly likely later this year, after predicting just two months ago that there would be no rate cuts until 2024.
“One or two cuts in the fall seem more likely,” Solomon said in a CNBC interview from Paris on Tuesday. “There is no doubt that there are some shifts in consumer behavior, and that the cumulative impact of long-term inflationary pressures, even if they are subsiding, is having an effect on consumer habits.”
The S&P 500 Index has likely already booked the gains it will make this year, but the benchmark still offers plenty of opportunity for investors, Bank of America Corp. said.
While BofA’s Savita Subramanian is neutral on the index overall, he says there is potential for strong returns in a few areas: among dividend payers, beneficiaries of ‘old school’ capital investments such as infrastructure, construction and manufacturing stocks, and other themes that don’t revolve around this. artificial intelligence.
“In mid-2023, sentiment was very negative and our toolkit suggested the direction of economic and earnings surprises was positive rather than negative,” Subramanian, head of U.S. equity and quantitative strategy, told clients in a July 29 note. “Today sentiment is neutral and the positive surprise is fading.”
Business highlights:
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Pfizer Inc. raised its profit forecast for the year, citing new cancer drugs, in an effort to plug a Covid-related gap in sales.
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Merck & Co. suffered light sales of its Gardasil HPV vaccine in China, causing quarterly profit to decline and revenue to exceed Wall Street estimates.
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SoFi Technologies Inc. raised its forecast for this year’s earnings and revenue, as the fintech benefits from both its newer technology businesses and its trademark lending.
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Archer-Daniels-Midland Co.’s quarterly profit shrank more than expected as the grain trading giant faces a downturn in crop markets.
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Airbus SE’s operating profit fell by more than half in the second quarter after the company booked a charge at its aerospace unit, forcing it to cut costs due to lower-than-expected aircraft deliveries.
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L’Oréal SA reported sluggish sales growth in the second quarter as the world’s largest beauty products maker suffered from weakness in China.
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BP Plc maintained the pace of share buybacks and increased its dividend as strong second-quarter profits from pumping crude offset weakness in other parts of the business.
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Grifols SA, the Spanish pharmaceutical company hit by a short-seller attack this year, said it had overestimated the value of its stake in a Chinese company and reported an accounting adjustment of €457 million ($494 million).
Main events this week:
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Eurozone CPI, Wednesday
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Bank of Japan policy decision, Wednesday
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US ADP employment change, Wednesday
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Fed rate decision, Wednesday
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Meta Platforms earnings, Wednesday
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Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Thursday
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U.S. Initial Unemployment Claims, ISM Manufacturing, Thursday
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Amazon, Apple earnings, Thursday
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Bank of England interest rate decision, Thursday
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US employment, factory orders, Friday
Some of the major moves in the markets:
Shares
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The S&P 500 was down 0.8% as of 1:23 p.m. New York time
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The Nasdaq 100 fell 1.6%
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The Dow Jones Industrial Average rose 0.2%
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The MSCI World Index fell 0.5%
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Bloomberg Magnificent 7 Total Return Index fell 2.4%
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The Russell 2000 Index was little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0817
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The British pound fell 0.2% to $1.2837
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The Japanese yen rose 0.6% to 153.09 per dollar
Cryptocurrencies
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Bitcoin fell 2.2% to $65,906.04
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Ether fell 0.9% to $3,292.95
Bonds
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The yield on ten-year government bonds fell by three basis points to 4.14%
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The German ten-year yield fell by two basis points to 2.34%
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The British ten-year yield remained little changed at 4.04%
Raw materials
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West Texas Intermediate crude fell 1.1% to $74.94 a barrel
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Spot gold rose 1% to $2,407.08 an ounce
This story was produced with the help of Bloomberg Automation.
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