Weekly Market Recap Report
📝 Volatility, Earnings Surprises, and Market Rotation
📅 Friday July 26, 2024
Market Volatility Returns 📉
Volatility returned to the stock market in a big way this week as investors juggled dip buying, lackluster earnings from the Magnificent 7, and a rotation into small caps and cyclical areas of the market.
Monday:
NASDAQ Rebound: The NASDAQ reversed course on Monday, led by a +4.00% spike in semiconductors.
Tuesday:
Mixed Results: Weaker-than-expected manufacturing and housing data left the major averages mixed.
Wednesday:
Tech Selloff: Disappointing earnings from Alphabet (GOOGL) and Tesla (TSLA) triggered a selloff in big-cap tech shares and semiconductors, with the Philadelphia Semiconductor Index sinking -5.41% and the NASDAQ dropping 654.94 points (-3.64%), its biggest one-day drop since 2022.
Thursday:
Rally on GDP: A better-than-expected Q2 GDP print of +2.8% (vs. +1.9% expected) set off a snap-back rally on hopes of a soft landing for the economy. The DJIA soared 584.95 points, and the small-cap Russell 2000 surged +2.8% but ran out of steam late, nearly erasing all gains.
Friday:
Inflation Check: A mostly inline PCE report showing inflation remained in check set off another spike in prices, and the major averages went into the weekend on a high note led by strength in the Dow Jones and Russell 2000.
Interest Rates & Crude Oil:
Rates Eased: The yield on the 10-year Treasury landed at 4.198%, and the two-year T-Bill at 4.396%, a five-month low. Lower rates gave a boost to homebuilders, with the US Home Construction ETF (ITB) posting a new record high on Friday.
Oil Prices Dip: Crude oil prices dipped back below $80 a barrel on hopes for a Gaza ceasefire and concerns about demand from China's economy, closing the week at $76.75 a barrel.
Sector Performance:
Outperformers: Utilities (XLU), Healthcare (XLV), Materials (XLB), and Financial (XLF).
Lagging: Consumer Discretionary (XLY), Technology (XLK), and Communication Services (XLC) due to rotation out of the Magnificent 7.
Index Performance:
DJIA: Up for a fourth consecutive week, gaining 301.81 points (+0.7%) to settle at 40,589.34.
S&P 500: Lost 45.90 points (-0.8%) to close at 5,459.10.
NASDAQ: Dropped 369.06 points (-2.1%) to finish at 17,357.88.
Russell 2000: Higher for a third consecutive week, adding 75.67 points (+3.5%) to settle at 2,260.07.
Market Outlook:
Technical Condition:
S&P 500 & NASDAQ: Technical indicators remain weak with bearish MACD and negative Momentum (14-day RSI). The S&P 500 is struggling to hold support at its 50-day MA, while the NASDAQ failed to hold support at its 50-day MA, with secondary support around 16,820-16,830 (its 100-day MA).
Philadelphia Semiconductor Index: Down -17.2% from its high of two weeks ago, trying to hold support at its 100-day MA.
Magnificent 7 Sectors: Consumer Discretionary (XLY), Technology (XLK), and Communication Services (XLC) held support at their respective 100-day MAs, a positive sign going forward.
Breadth Indicators:
NYSE & NASDAQ A/D Lines: Both nudged higher, showing most stocks remain under accumulation despite headline weakness. The NYSE A/D hit a new record high on Friday.
New Highs vs. New Lows: New highs exceeded new lows even on sharp down days.
Investor Sentiment:
AAII Sentiment: Retail bullish sentiment dropped from 52.7% to 43.2%, the lowest in a month.
NAAIM Exposure Survey: Professional equity exposure fell to 76.7% from 103.7% three weeks ago.
Industry Group Rankings:
Strongest: Savings & Loans, Paper Products, Banks-Southern, Banks-Eastern.
Weakest: Household Products-Durable, Aluminum, Metals Non-Ferrous, Diversified Mining.
ETF Center:
Top Performers: Shorts (+1.92%), Specialty Health (+1.87%), Blend-Small Cap (+1.28%), Growth-Small Cap (+0.74%), Value-Small Cap (+0.62%).
Weakest: Specialty Technology (-5.88%), Commodity-Precious Metals (-3.93%), Commodity-Base Metals (-3.83%), Sector-Telecom (-3.72%), Specialty Communications (-3.72%).
🗓️ Next Week:
July FOMC Meeting: Kicks off on Tuesday, with the Fed's announcement on rates and Fed Chair Jerome Powell's press conference on Wednesday. While it's unlikely the Federal Reserve will move on rates, investors hope Powell & Co. will signal the potential for a rate cut in September.
*Disclaimer: The information in The Options Oracle is my opinion, not financial advice.
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