(Bloomberg) -- A selloff in some of the world’s largest technology companies sent stocks down ahead of key central bank decisions. Bonds and gold climbed amid a flare-up in geopolitical risks. Oil remained lower.
Renewed tech weakness weighed on the S&P 500 — with Nvidia Corp. tumbling — even as most of the index’s shares gained. After an over US$2-trillion Nasdaq 100 wipeout, waded through Microsoft Corp.’s results for clues on the outlook for artificial intelligence. The shares sank 7% in late hours. The numbers will set the scene for reports from other heavyweighs this week, with markets also gearing up for Wednesday’s Federal Reserve decision.
“If the Fed does not signal a September rate cut, markets could get a bit ugly given recent tech weakness — especially if earnings underwhelm,” said Tom Essaye at The Sevens Report.
While the Fed is expected to hold benchmark rates at the highest level in more than two decades, traders will be closely watching for any hints that the start of policy easing is near. In the run-up to the announcement, data showed U.S. consumer confidence rose on an improved outlook for the economy and job openings beat forecasts.
The S&P 500 fell to around 5,435. The Nasdaq 100 slid 1.4%. A gauge of the “Magnificent Seven” megacaps sank 2%. The Russell 2000 of small firms rose 0.3%. CrowdStrike Holdings Inc. plunged on a report Delta Air Lines Inc. hired an attorney after a tech outage. Procter & Gamble Co. sank on a sales miss. JetBlue Airways Corp. soared on a turnaround plan.
Treasury 10-year yields dropped three basis points to 4.14%. West Texas Intermediate crude hovered near $75. Israel’s military struck Beirut, aiming at a Hezbollah commander, in response to a rocket attack on Saturday in the Golan Heights.
The yen rose. Bank of Japan Governor Kazuo Ueda will be under intense scrutiny Wednesday when he unveils his plans for quantitative tightening and delivers a decision on the policy interest rate. Recent yen weakness has done more harm than good for the Japanese economy, according to Japan’s newly appointed top foreign exchange official.
Goldman Sachs Group Inc. Chief Executive Officer David Solomon told CNBC that one or two Fed rate cuts later this year are looking increasingly likely. That’s after predicting just two months ago there would be no rate reductions in 2024.
Aside from tech earnings, the continuing broadening of this year’s stock market rally hangs on what the Fed does and says about rates on Wednesday. Signs of cooling inflation have made traders step up their rotation out of big tech — and into everything from small-capitalization stocks to value plays.
If the Fed is about to begin a rate reduction cycle, stock bulls have history on their side. In the six prior hiking cycles, the S&P 500 has risen an average 5% a year after the first cut, according to calculations by the financial research firm CFRA. What’s more, the gains also broadened, with the small-cap Russell 2000 Index climbing 3.2% 12 months later, CFRA’s data show.
To Bank of America Corp.’s Savita Subramanian, the S&P 500 has probably already logged the gains it will see this year, but the benchmark still presents ample opportunities for investors.
While neutral on the index overall, she says there’s potential for strong returns in a few areas: among dividend payers, “old school” capital-expenditure beneficiaries like infrastructure, construction and manufacturing stocks, and other themes that don’t revolve around artificial intelligence.
“In mid-2023, sentiment was deeply negative and our toolkit suggested that the direction of economic and earnings surprises was more likely positive than negative,” Subramanian wrote. “Today, sentiment is neutral and positive surprises are ebbing.”
Corporate Highlights:
· Pfizer Inc. raised its profit expectations for the year, citing new cancer drugs, as it seeks to dig out of a Covid-related hole in sales.
· Merck & Co. got hit as light sales of its Gardasil HPV vaccine in China dimmed quarterly profit and sales that beat Wall Street estimates.
· SoFi Technologies Inc. raised its forecast for this year’s profit and revenue as the fintech benefits from both its newer technology businesses and its trademark lending operation.
· Archer-Daniels-Midland Co. and AGCO Corp. plunged as disappointing earnings heightened concerns about a slowdown in the farming sector after several boom years.
· Airbus SE has initiated a wholesale review of its ailing space business, with Chief Executive Officer Guillaume Faury saying he’s weighing all possibilities about the future of the subsidiary after it racked up close to $1 billion in charges in the first half.
· L’Oréal SA reported sluggish sales growth in the second quarter as the world’s biggest maker of beauty products suffered from weakness in China.
· BP Plc maintained the pace of share buybacks and increased its dividend as strong second-quarter earnings from pumping crude offset weakness in other parts of the business.
· Grifols SA, the Spanish pharmaceutical company hit by a short seller attack this year, said it overstated the value of its stake in a Chinese firm and reported an accounting adjustment of €457 million ($494 million).
Key events this week:
· Eurozone CPI, Wednesday
· Bank of Japan policy decision, Wednesday
· U.S. ADP employment change, Wednesday
· Fed rate decision, Wednesday
· Meta Platforms earnings, Wednesday
· Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Thursday
· U.S. initial jobless claims, ISM Manufacturing, Thursday
· Amazon, Apple earnings, Thursday
· Bank of England rate decision, Thursday
· U.S. employment, factory orders, Friday
Some of the main moves in markets:
Stocks
· The S&P 500 fell 0.5% as of 4 p.m. New York time
· The Nasdaq 100 fell 1.4%
· The Dow Jones Industrial Average rose 0.5%
· The MSCI World Index fell 0.3%
· Bloomberg Magnificent 7 Total Return Index fell 2%
· The Russell 2000 Index rose 0.3%
Currencies
· The Bloomberg Dollar Spot Index was little changed
· The euro was little changed at $1.0811
· The British pound fell 0.2% to $1.2832
· The Japanese yen rose 0.5% to 153.26 per dollar
Cryptocurrencies
· Bitcoin fell 2.1% to $65,939.38
· Ether fell 1.5% to $3,272.72
Bonds
· The yield on 10-year Treasuries declined three basis points to 4.14%
· Germany’s 10-year yield declined two basis points to 2.34%
· Britain’s 10-year yield was little changed at 4.04%
Commodities
· West Texas Intermediate crude fell 0.9% to $75.09 a barrel
· Spot gold rose 1% to $2,407.48 an ounce
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