Key Takeaways
- Tech Stocks Drop, Small Caps Gain Amid Market Volatility
- Microsoft Earnings Beat, But Cloud Division Slightly Misses
- Fed Decision On Interest Rates Key Market Focus Today
Stocks had another tough session on Tuesday. The S&P 500 fell 0.5% and the Nasdaq Composite dropped 1.3%. As we enter the last day of July, the S&P is off just under 0.5% while the Nasdaq is down 4.5%. If those indices close lower on the day, it will be just the second month this year where stocks lost ground. In the meantime, the Russell 2000 gained 0.4% yesterday. That puts the index up around 10% for the month and 11% for the year, pulling it much closer into line with the 14% year-to-date gains in the S&P and Nasdaq. However, where markets ultimately end the month is up in the air as we have quite a bit happening today. But let’s quickly recap some overnight activity.
After the close on Tuesday, Microsoft reported sales and profits that beat; however, their cloud computing division missed slightly. The company also lowered second half guidance, but the revisions were not as bad as many feared. As I mentioned on Monday, the question being asked in the Artificial Intelligence (AI) space is how companies plan to monetize the technology. Last week, Alphabet didn’t have a good answer and the company’s stock was subsequently punished. Microsoft is in a slightly different position as the company already is monetizing AI. In fact, the company reported that eight percentage points of their cloud computing growth came from AI. Microsoft is indicated lower by 3% in premarket.
In the meantime, chip stocks are largely advancing in premarket. Following Tuesday’s close, Advanced Micro Devices said their data center sales doubled in the quarter, boosting shares higher by 9%. ASML Holdings is higher by 7% after it was reported they would likely be exempt from new rules banning chip exports to China. Nvidia is also higher in premarket by nearly 7%, erasing yesterday’s losses of the same amount.
We also heard from Starbucks, Boeing and Humana overnight. Despite a fall in same store sales, Starbucks reaffirmed full year guidance, sending that stock higher by 3% in premarket. Shares of Boeing are up over 3%. Despite missing on both the top and bottom line, the airline maker reaffirmed production goals for the year. Perhaps more importantly, the company also announced Kerry Ortberg will take over as the company’s new CEO. And Humana shares are down over 7% in premarket after the company reported higher than expected inpatient hospital admissions, which led to higher costs.
With earnings coming out before the open and after the close, the big intraday story today will be the Federal Reserve Open Market Committee (FOMC) announcement on interest rates. That decision is due out at 1PM central time and comes after the Bank of Japan raised rates over night, sending Japanese and Australian stocks higher. It is largely expected the Fed will leave rates untouched today; however, markets are expressing certainty that when the Fed meets next in September, rates will be cut. Therefore, most observers, myself included, are more interested in what Jerome Powell says in his press conference. Personally, with the expectations for a future cut so high, I expect him to say as little as possible. I don’t think he wants to paint himself into any more of a corner than he already is at this point.
Some other odds and ends I’m watching today include Amazon and more earnings. Amazon announced they will be expanding their one and two day delivery capabilities in rural areas. While most people in larger populated areas have become accustomed to quick deliveries, less populated regions still experience longer wait times. That news comes ahead of Amazon earnings which are due out Thursday, after the close. However, after today’s close, Meta Platforms, Arm Holdings and Qualcomm report their earnings.
For today, I want to see if stocks can actually hold their gains. S&P futures are trading higher by 1% and Nasdaq futures are up almost 2% in premarket. I think part of today’s rally is related to Microsoft earnings not being as bad as some feared and what that could have meant for AI overall. I’m also very interested in what Jerome Powell says this afternoon and his outlook for inflation. I think it’s important to keep in mind that inflation is still around 2.5% and if the Fed is planning to cut rates, does that mean 2% is no longer the goal? Or does it mean the Fed is expecting growth to continue slowing and they want to get out in front of it. I’m also very interested to hear from Arm and Qualcomm and what demand for their products looks like for the rest of this year. As always, I would stick with your investing plan and long-term objectives.
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