When you live by Big Tech, you expire by Big Tech. This is exactly what happened to the stock market final week.
On the surface, it wasn’t a pleasing idea. the
S&P 500 . Index
decreased 0.4%; the
Dow Jones Industrial Average
It lost 126.08 points or 0.4%. and the
It decreased by 1.1%.
That’s not surprising: It’s firm for a market capitalization-weighted index — like the S&P 500 or the Nasdaq — to rise when its largest components fall, as it did with tech stocks worth more than a trillion dollars final week. And that’s despite notable corporate earnings reports.
(Stock ticker: AAPL), with a market capitalization of $2.4 trillion, is down 1.8%.
(MSFT), with a value of $2.1 trillion, is down 1.6%.
(FB) is down 3.7% for the week, and
(AMZN) 9%. Just
(GOOGL) ended the week higher, with a acquire of 1.3%.
However, the weakness on the index level hid the strength below the surface of the market. More than 300 companies finished in the S&P 500 in positive territory. Some of the gains were significant with companies like
Advanced Micro Devices
(MAT), and Perkin Elmer (PKI) added over 10% each, mostly on positive earnings news. the
Equal weight Invesco S&P 500
The value of exchange-traded funds (RSP) rose 0.6%, while little caps rose
He earns 0.8%.
“While the stock market is dropping and losing upward momentum, the stock market has stabilized,” says John Kolovos, chief technical strategist at Macro Risk Advisors.
The other major events of the week hardly left their mark. At the FOMC meeting in July, the Fed did nothing, except donate some hints that it might start reducing its bond purchases at some point in the coming. In the press conference following the meeting, Fed Chair Jerome Powell shrugged off questions about inflation and said there was no need to hoist interest rates anytime soon. This makes sense, given that the US still has vast borrowing needs to be financed, preferably at low interest rates, says Mark Grant, chief global fixed income strategist.
The second quarter GDP reading also received little reaction. Gross domestic product grew at an annual rate of 6.5%, beating expectations by about two percentage points, but the disappointment was easily explained. Michael Darda, chief economist at MKM Partners, points out that final sales to domestic private buyers, a measure of strength in the private sector of the economy, grew at a 9.9% annualized rate, while a fairly obvious cause can be blamed. Aldera explains that this was “mainly due to inventory withdrawals.”
In other words, you don’t have to worry yet.
The biggest cause for concern may be why the market continues to rise: Corporate earnings were impressive final quarter, with earnings coming in 16.7% overhead expectations, and 88.5% of companies beating expectations, according to Refinitiv. Furthermore, 86.8% exceeded revenue expectations. Analysts persevere to hoist their estimates to account for growth. This has allowed investors to look beyond the higher valuations, assuming they will get a stronger dividend than official estimates, notes Leuthold Group’s Phil Seigner.
But that’s not usually how it works. In most years, estimates start out too lofty and are slowly lowered. He writes: “Right now, marvel at the impressive, expanding, forward-looking EPS of the S&P 500.” “But at some point, if years of history are a guide, coming EPS estimates will be very lofty again, and this could be a healing moment for the market.”
Investors got a hint about it from Big Tech, whose shares were sanctioned when the companies cut guidance. The rest of the market should be fine as lengthy as it doesn’t succeed the lead of technology. When that happens, watch out.