Market on edge: More volatility ahead

Introduction:

Last week, the financial markets experienced significant fluctuations as major indices responded to a mix of earnings reports, economic data, and political developments. The volatility persisted throughout the week, reflecting investor uncertainty and cautious sentiment.

Recap of last week

Market performance

The major indices showed notable movements last week:

  • S&P 500 index (SPX): The SPX declined by 0.83%, closing the week at 5,459.10. The index saw a high of 5,585.34 and a low of 5,390.95, indicating a volatile trading range.
  • Nasdaq 100 index (NDX): The Nasdaq 100 dropped by 2.56%, ending the week at 19,023.66. The index experienced significant fluctuations, reaching a high of 19,904.60 and a low of 18,721.71.
  • US Small Cap 2000 index (RUT): In contrast, the Russell 2000 gained 3.47% over the week, closing at 2,260.0689. The small-cap index performed robustly, highlighting investor interest in smaller companies.

Volatility movements

Volatility was on the rise for most of the week before declining on Friday:

  • VIX (volatility index): The VIX opened the week at 16.79, reached a high of 19.36, and closed at 16.39, down by 0.13 points or -0.79% for the week. This trend indicates increasing market fear and uncertainty during the week, which eased slightly by Friday.
  • Volatility trends: The week showed a clear rise in volatility from Monday through Thursday, with a notable drop on Friday, suggesting a temporary reprieve in market anxiety.
Volatility is on the rise again - VIX Daily chart compared to VIX-futures chart

Key earnings results

  • Tesla (TSLA): Despite high sales volumes, Tesla's earnings showed squeezed profit margins, raising concerns about future profitability. Tesla reported earnings per share (EPS) of $0.52, missing the expected $0.61. Revenue was $25.5 billion, slightly above the expected $24.33 billion. Following the earnings report, Tesla's stock price dropped significantly, closing at $215.99, down 12.33% for the day.

  • Alphabet (GOOGL): Alphabet met analyst expectations but faced concerns over future advertising revenue. The company reported EPS of $1.89, meeting the expected $1.83, with revenue of $84.74 billion, slightly above the expected $84.16 billion. Despite meeting expectations, concerns about future advertising revenue led to a selloff in tech stocks. Alphabet's stock price fell by 5.04%, closing at $172.63 following the earnings announcement.

Upcoming week: High volatility expected

Economic events

This week is expected to bring significant volatility, driven by a series of crucial economic reports and the Federal Reserve's upcoming meeting. Key economic events include:

  • Tuesday: CB Consumer Confidence and JOLTs Job Openings
  • Wednesday: ADP Nonfarm Employment Change and the FOMC statement, including the Interest Rate Decision and subsequent press conference
  • Thursday: Initial Jobless Claims and ISM Manufacturing PMI
  • Friday: Nonfarm Payrolls and the Unemployment Rate

The FOMC statement and the employment-related data are particularly important, as they will provide insights into the Federal Reserve's monetary policy direction and the health of the labor market, respectively.

Earnings reports

In addition to the economic events, this week will feature earnings reports from several major companies, including:

  • Monday: ON Semiconductor (ON)
  • Tuesday: Microsoft (MSFT), Procter & Gamble (PG), Advanced Micro Devices (AMD), and Starbucks (SBUX)
  • Wednesday: PayPal (PYPL), Meta Platforms (META), and Mastercard (MA)
  • Thursday: Qualcomm (QCOM), Arm Holdings (ARM), and Apple (AAPL)
  • Friday: Amazon (AMZN), Intel (INTC), ExxonMobil (XOM), and Chevron (CVX)

The earnings from the "Magnificent 7" (MSFT, AAPL, AMZN, NVDA, TSLA, GOOGL, META) will be closely watched, as they have significant potential to impact market volatility and investor sentiment. Here's a closer look at the expected results and key focus areas for these companies:

  • Microsoft (MSFT): Reporting on July 30, 2024, Microsoft is projected to achieve $64.37 billion in revenue, a 14.6% year-over-year increase. The expected EPS is $2.93, up from $2.69 last year. Investors will focus on growth in the Azure cloud platform and updates on AI initiatives. (1)

  • Meta (META): Meta's earnings are scheduled for July 31, 2024, with revenue expected at $38.35 billion, marking a 20% increase year-over-year. The projected EPS is $4.71, significantly higher than $2.98 last year. Key areas of interest include advertising revenue growth and updates on AI initiatives, particularly the new Llama 3.1 model. (2)

  • Apple (AAPL): Apple will report on August 1, 2024. The company is projected to post $84.39 billion in revenue, a 3.1% year-over-year increase, and an EPS of $1.34, up from $1.26 last year. Investors will be keen on iPhone sales in China and updates related to AI. (3)

  • Amazon (AMZN): Also reporting on August 1, 2024, Amazon is expected to achieve $149 billion in revenue, driven by growth in retail and cloud services. The projected EPS is $1.02, up from $0.63 last year. Key focus areas will be the performance of Amazon Web Services (AWS) and the North American e-commerce segment. (4, 5)

Summary and Outlook

This week, the financial markets are poised for heightened volatility due to a confluence of critical economic reports and significant corporate earnings. Last week saw major indices like the S&P 500 and Nasdaq 100 experiencing declines, while the Russell 2000 showed resilience. Volatility spiked mid-week but eased off by Friday.

Key economic events, including the FOMC statement and various employment-related reports, will be crucial in determining market direction. These reports will provide insights into the Federal Reserve's monetary policy and the health of the labor market, both of which are pivotal for investor sentiment.

The earnings reports from major companies, particularly the "Magnificent 7," will also play a significant role in shaping market volatility. Investors will be closely monitoring the performance of tech giants like Microsoft, Meta, Apple, and Amazon, as their results and guidance will have substantial impacts on market dynamics.

In summary, with a mix of high-stakes earnings reports and pivotal economic data, investors should brace for potential market swings. Staying informed and prepared for volatility will be key strategies for navigating the week ahead.