US Stock Market Sees Significant Turnaround
Friday marked a significant turnaround for the US stock market, with all major indices closing in the green.
Key Drivers of the Market Rally
This positive performance was primarily driven by two key factors: encouraging earnings reports from several major companies and better-than-expected inflation data.
- Earnings Reports:
The Dow Jones Industrial Average surged by 1.6%, while the S&P 500 and Nasdaq Composite gained 1.1% and 1% respectively. This marked the S&P 500’s best day in seven weeks.
Companies like 3M delivered impressive quarterly results, surpassing analyst expectations, which boosted investor confidence.
- Inflation Data:
While inflation remains a concern, recent data suggests a potential cooling trend. This could alleviate fears of aggressive interest rate hikes, supporting market optimism.
Sector Shifts Indicate a Healthier Market
The market witnessed a shift away from the dominance of tech stocks, with a broader range of sectors contributing to the rally. This indicates a healthier market environment.
Overall Market Context and Uncertainties
It’s important to note that while Friday’s performance was encouraging, the overall market trend remains somewhat uncertain. Investors are still navigating a complex landscape with ongoing geopolitical tensions, economic challenges, and the potential for further interest rate adjustments.
Overall, Friday’s rally provides a much-needed respite for investors after a period of volatility. However, sustained market gains will likely depend on the ongoing trajectory of earnings, inflation, and economic indicators.
Weekly Performance
- S&P 500: Down 45.90 points, or 0.8%.
- Dow Jones: Up 301.81 points, or 0.7%.
- Nasdaq: Fell 369.06 points, or 2.1%.
- Russell 2000: Up 75.72 points, or 3.5%.
Friday’s Closing Levels:
| Index | Close | Change | % Change |
| Dow Jones | 40,589.34 | +654.27 | +1.64% |
| S&P 500 | 5,459.10 | +59.88 | +1.11% |
| Nasdaq Composite | 17,357.88 | +176.16 | +1.03% |
| US 10-Year Yield | 4.194% | ||
| VIX | 16.39 | -2.07 | -11.21% |
Market Rotation and Outlook
The rotation from tech into small caps was the main theme of last week’s trading. The selloff in tech began with poor earnings reports from Tesla and Google. This also coincided with a selloff in USD/YEN, suggesting that the market was using the Yen to finance the tech rally, which is now unwinding.
Volatility and Upcoming Earnings Reports
While the Nasdaq managed to stay above the 100-day moving average, Friday’s close off the highs may signal that the selling is not over yet. The upcoming Fed meeting is expected to provide guidance for a September rate cut.
Looking Ahead: What to Watch for
Volatility is anticipated with more mega tech stocks reporting earnings this week, so watch out for any disappointments. The broader market, represented by the Russell 2000, is now up 11.5% for the year, with analysts predicting the rally will continue as long as there are no signs of a recession.
If the rotation out of tech continues, it may not bode well for big tech. Keep an eye on technical levels like the 100-day and 200-day moving averages for signs of capitulation. Although unlikely, it is always good to be prepared.
Source: CBOE, Bloomberg
This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable US bank exceeding 20 years.
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