The Stock Market Rises Before the Fed With Earnings in Full Swing

A massive selloff among the world’s largest companies caused a significant drop in stock prices, as traders prepared for earnings reports from major tech firms and central bank decisions that are expected to shape market trends.

‍

Despite over 300 stocks in the S&P 500 seeing gains, the index was dragged down by renewed weakness in the tech sector, with Nvidia Corp. plummeting 6%. This occurred after a staggering $2.3-trillion wipeout in the Nasdaq 100.

‍

Investors are eagerly awaiting results from Microsoft Corp., amid concerns that companies have yet to see substantial returns from artificial intelligence investments. Microsoft's performance will set the tone for other major tech firms reporting this week, while markets also brace for the Federal Reserve’s decision on Wednesday.

‍

Tom Essaye from The Sevens Report noted, "If the Fed does not signal a September rate cut, markets could get a bit ugly given recent tech weakness — especially if earnings underwhelm."

‍

The Federal Reserve is expected to keep benchmark rates at their highest level in over two decades, but traders will be keenly watching for any signs of potential policy easing. Leading up to the decision, data showed an increase in U.S. consumer confidence, driven by an improved economic outlook, and job openings exceeded expectations.

‍

The S&P 500 fell to 5,425, while the Nasdaq 100 dropped 1.4%. A gauge of the “Magnificent Seven” megacap stocks sank by 2%, and the Russell 2000, representing small firms, remained relatively unchanged. Microsoft Azure is currently investigating global connection issues, and CrowdStrike Holdings Inc. saw a steep decline following reports that Delta Air Lines Inc. hired a prominent attorney after a tech outage. Additionally, Procter & Gamble Co. experienced a drop due to missing sales expectations.

‍

Treasury 10-year yields remained steady at 4.17%, while the yen saw fluctuations. Bank of Japan Governor Kazuo Ueda will face intense scrutiny on Wednesday when he announces plans for quantitative tightening and delivers a decision on the policy interest rate.

‍

The continuation of this year’s robust stock market rally hinges on the Federal Reserve's actions and statements regarding interest rates following their two-day meeting. Since the latest consumer price index data indicated cooling inflation, traders have increasingly shifted their investments from Big Tech stocks to smaller-cap and value stocks.

‍

Should the Fed initiate a rate reduction cycle, historical trends favor stock bulls. According to CFRA, in the six previous rate-hiking cycles, the S&P 500 Index has risen by an average of 5% in the year following the first rate cut. Additionally, the gains have broadened, with the small-cap Russell 2000 Index climbing 3.2% 12 months later.

‍

Goldman Sachs Group Inc. CEO David Solomon recently suggested that one or two Fed rate cuts later this year seem increasingly likely. This is a shift from his earlier prediction two months ago that there would be no rate cuts in 2024. "One or two cuts in the fall seems more likely," Solomon remarked during a CNBC interview in Paris. "There’s no question there are some shifts in consumer behavior, and the cumulative impact of what’s been kind of a long inflationary pressure, even though it’s moderating, is having an effect on consumer habits."

‍

The market's reaction to the Fed's decision and the upcoming earnings reports from tech giants will be crucial in determining the near-term direction of stock prices. Investors will be closely monitoring these developments, as they could significantly influence market sentiment and investment strategies moving forward.

‍