Closing Market Update

Published as of: July 26, 2024, 4:30 p.m. ET 

(Friday market close) Stocks ended an otherwise rough week with broad-based gains across all the major indexes, thanks to strong earnings reports and an inflation update that appeared to cement investors' convictions that an interest rate cut is nigh. The Dow Jones Industrial Average (DJI) had a particularly good day, as industrial conglomerate 3M Co. (MMM) rocketed higher after delivering expectations-beating quarterly numbers. 

Even with Friday's gains, the S&P 500^® Index (SPX) still lost 0.8% this week, and the tech-focused Nasdaq Composite (COMP) was down 2.1%. The DJIA fared better, with a 0.8% rise, while the small-cap focused Russell 2000 (RUT) outperformed with a 3.3% gain.

Investors seeking a theme for this week might look toward the shifting fortunes of the index-dominating mega caps known as the Magnificent 7. 

For much of the past year, these stocks—Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA)—have played an outsize role in driving the benchmark indexes higher, even as other parts of the market struggled. Two forces provided the fuel: excitement about artificial intelligence (AI) and the appeal of size among investors concerned about inflation, interest rates, and economic growth. 

The situation has started to change in recent weeks as the Magnificent 7 stocks started to fall victim to their own success and shifts in the economy. Increasingly cautious investors have been rotating money away from some of the highly valued big guys into other parts of the market, particularly small caps seen as benefiting from easier monetary conditions. Then, after market close on Tuesday, Alphabet and Tesla offered up results that seemed to underscore investors' concerns, triggering a midweek slump. On Wednesday, the Nasdaq Composite suffered its biggest fall since October 2022. The S&P 500 experienced its first 2% drop in nearly a year.

Stocks attempted a comeback Thursday, only to falter late in the session and not find the energy to rise again until Friday.

Schwab Senior Investment Strategist Kevin Gordon notes that volatility has been a feature since the June Consumer Price Index (CPI) report reflected its first monthly decline in more than four years. 

"Some of today's movement is a natural reaction for certain segments of the market—most notably, tech—that are currently in correction territory," he said. "These kinds of strong bounces are normal to see in the midst of a drawdown."

"Earnings have also been an important needle-mover for some of the mega-cap names, but it’s early days since most of them report next week," Gordon said. "Even then, though, it will be harder to draw a narrative since next week is dominated by two major macro events: the Federal Reserve meeting and July payrolls."

On Friday, the government reported that the Personal Consumption Expenditures (PCE) price index rose 0.1% in June from the month before and was up 2.5% compared to a year earlier, meeting analysts' expectations. Core PCE, which strips out food and energy prices and is the Fed's preferred inflation gauge, rose by 0.2% for the month and 2.6% for the year. The annual increase was slightly above analysts' expectations but below the Fed's year-end median projection of 2.8%.

Here's where the major benchmarks ended:

• The S&P 500 rose about 60 points (1.1%) to 5,459.10; the Dow Jones Industrial Average was up 654 points (1.6%) at 40,589.34; the Nasdaq Composite ended 176 points higher (1.0%) at 17,357.88.
• The 10-year Treasury note yield (TNX) fell five basis points to 4.197%.
• The Cboe Volatility Index® (VIX) slipped 10% to 16.56.

The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:

• 3M Co. surged nearly 24% after the Dow component reported better-than-expected quarterly results and raised its full-year earnings forecast. The industrial conglomerate has been struggling after settling class-action lawsuits related to "forever chemicals" and military earplugs last year. It is now trading at a nearly two-year high. 
• Aon (AON) jumped 7.7% after the British professional-services company reported better-than-expected quarterly results. 
• Bristol-Myers Squibb (BMY) rose more than 11% after the pharmaceutical maker delivered better-than-expected quarterly results and raised its full-year forecast. 
• Coinbase Global (COIN) was up nearly 5% as the crypto exchange benefited from bitcoin's 3% rise to $67,481.80.
• Colgate-Palmolive (CL) gained 3% after its results beat expectations and the toothpaste-maker raised its forecasts for the year. 
• Dexcom (DXCM) dropped 41% after missing its revenue estimates for the quarter and lowering its full-year forecast. 

Next week brings results from McDonald's (MCD) on Monday; Microsoft, Starbucks (SBUX), and Merck (MRK) on Tuesday; and Boeing (BA), T-Mobile US (TMUS), and Mastercard (MA) on Wednesday. Thursday features numbers from Apple, Amazon, and Intel (INTC).

Economy watchers are also set for the next meeting of the Fed's rate-setting body on Tuesday and Wednesday and jobless claims on Thursday. 

Investors seem certain the Fed will keep rates unchanged when its governors meet next week, according to the CME FedWatch Tool. September is a different story, though, with investors pricing in a roughly 88% chance of a quarter-point cut and 12% odds the Fed could enact an even bigger half-point cut. 

"The PCE report makes the case for a September rate cut by the Fed ever stronger, as the disinflationary trend continues," the Schwab Center for Financial Research said in a report. "The 0.2% monthly change in the core PCE was its second straight month of a 0.2% or less increase, and the year-over-year change is currently below the Fed's year-end projection of 2.8%." 

"A very strong jobs report next week could give the Fed pause, but overall, the Fed has likely seen enough evidence of slowing that a rate cut seems likely."