Opening Market Update

Published as of: July 26, 2024, 9:13 a.m. ET

(Friday market open) Investors appear to be looking for oversold stocks among the chipmakers as futures based on the Nasdaq-100^®  (NDX) rallied 1% while those based on the S&P 500^® index (SPX) rose 0.8% in early morning action. Nvidia (NVDA) rose 3%, Micron (MU) climbed 2.48%, and Intel (INTC) increased 1.58% ahead of the opening bell.  

The Bureau of Economic Analysis released its Personal Consumption Expenditures (PCE) price index for June this morning showing that inflation grew 0.1% for the month, in line with consensus estimate. The year-over-year rate was reported at 2.5%, pegging the forecast estimate. However, year-over-year core inflation that excludes food and energy prices was hotter than expected at 2.6%, topping the Trading Economics’ consensus estimate of 2.5%, but was in line with analysts at 0.2% month over month.

Additionally, personal income grew 0.2% in June, falling short of the consensus of 0.4%, while personal spending grew 0.3%, which was in line with analysts' expectations.

Overall, the reports reflected a softer inflation picture, which may solidify investor expectations of the Federal Reserve cutting its benchmark rate in September.

• The 10-year U.S. Treasury yield (TNX) fell three and half basis points to 4.22%.
• The U.S. Dollar Index ($DXY) was relatively unchanged decreasing 0.01% to 104.34.
• The Cboe Volatility Index^® (VIX) dropped 5.15% to 17.51.
• WTI Crude Oil (/CL) traded 0.51% lower to $77.88 per barrel.
• Bitcoin (BTC) rose 5.04% to $67,228.41.

Gold futures (/GC) fell 2.6% on Thursday, which is the sixth time out of the last seven sessions the precious metal has closed lower. It appears that gold’s July 16 surge to a new all-time high was a bull trap because the breakout failed to hold to the higher levels. The AMEX Gold Bugs Index (HUI), which attempts to track gold mining companies, fell 3.4% before trimming its losses to close 2.43% lower on the day.

Meanwhile, copper futures (/QC) broke a losing streak having declined for eight straight trading days. The commodity is down 21% in the last 10 weeks.

The copper-to-gold ratio is commonly used by investors as a leading indicator for the 10-year Treasury yield. Copper usually rises when industrial demand is strong and economic activity is positive, whereas gold tends to be a safe haven for investors during rocky times. The ratio topped out in the middle of May and has declined rapidly as copper prices have fallen and gold prices have risen, suggesting yields decline. However, recent changes in the two metals could signal that yields may stay range bound in the near term.

Airlines got a much-needed boost in the afterburners on Thursday after Southwest (LUV) and American (AAL) rallied 5.52% and 4.23% respectively. The positive earnings reports helped the NYSE ARCA Airline Index (XAL) to rally 3.8% on Thursday. JetBlue (JBLU), Frontier (ULCC), and Air Lease (AL) are scheduled to report earnings next week.

Stocks on the move:

• 3M (MMM) rallied more than 7% in pre-market trading after reporting that it beat earnings and revenues forecasts and increasing its 2024 earnings guidance. The company has spent the last year cutting expenses, which included reducing its workforce by 10%.
• Bristol-Myers Squibb (BMY) reported better-than-expected earnings and revenue prompting the stock to climb more than 6% ahead of the opening bell. BMY’s blood thinning drug Eliquis helped drive revenues while cost cutting initiatives helped the bottom line.
• International Game Technology (IGT) and Everi Holdings (EVRI) rallied 18.75% and 40.15% respectively in pre-market action on the news that private equity firm Apollo Funds will take both companies private. The deal is valued at $6.3 billion.

Thursday in review: The major stock indexes traded slightly higher most the day on Thursday as investors absorbed Wednesday’s selloff. However, the S&P 500 index and the Nasdaq Composite^® ($COMP) ended up closing lower on the day. Bargain hunters appeared to favor the energy sector because it was the top performer among the S&P 500 sectors. However, industrials, financials and materials also closed in positive territory.

The Dow Jones Industrial Average^® ($DJI) edged out its counterparts closing 0.2% higher thanks in part to IBM (IBM), which rallied 4.33% on a positive earnings report. Salesforce (CRM) also helped to drive the index, jumping 5.75%, but gave back much of its gains to close 2.70% higher. On the other hand, Honeywell (HON) was a drag on the index, sliding 4.24% on a disappointing earnings report.

Small-cap stocks continued to be a bright spot, however, with the Russell 2000^® Index (RUT) ending almost 1.5% higher.

Early today, futures traders build in 6.7% chances that the benchmark funds rate will fall 25 basis points at the Federal Open Market Committee's (FOMC) July 30–31 meeting, based on the CME FedWatch Tool. Chances of a quarter point rate cut by September are 89.6% and odds of a half point cut were 10.2%.

Ideas to mull as you trade or invest

Doubts in the dollar? About a week ago, the U.S. Dollar Index fell below its May and June lows, which seemed to signal that the currency markets were expecting the Fed to start cutting rates. However, the dollar recovered its losses the next day and so far, the 104 support level has held. This may suggest that forex investors may not be as confident as futures traders in the Fed’s lower rate policy.

Rate cut cues for equities: Historically, rate cuts may initially be welcome by stock markets as a counterbalance to slowing economic growth, according to the Schwab Center for Financial Research. If a slowdown turns into a recession, markets tend to decline after an initial rate cut. Bank stocks could be hurt by a shrinking gap between what banks pay on deposits and charge on loans. And utility stocks tend to outperform as investors shift away from lower-yielding fixed income investments. 

Tightening Gucci belts: On Tuesday, French luxury goods company LVMH, which has brands like Louis Vuitton, Dior, Hennessy, and more reported disappointing earnings. The company was hit hard by declining sales, particularly in Asia. However, it’s not the only luxury stock that’s struggling. The S&P Global Luxury Index ($SPGLGUN) has fallen about 4% in the last two trading sessions and is down nearly 15% from its March high. Many investors see lower sales among luxury items as a sign of an overall weaker economy.

July 29: Expected earnings from McDonald's (MCD) and CNA Financial (CNA).

July 30: July consumer confidence and expected earnings from Illinois Tool (ITW), Merck (MRK), PayPal (PYPL), Procter & Gamble (PG), Caterpillar (CAT), Microsoft (MSFT), and Starbucks (SBUX).

July 31: July ADP Employment Change, June Pending Home Sales, FOMC rate decision, Employment Cost Index, and expected earnings from Altria (MO), Boeing (BA), Kraft Heinz (KHC), T-Mobile US (TMUS), Allstate (ALL), Arm Holdings (ARM), Lam Research (LRCX), Mastercard (MA).

August 1: Jobless claims, ISM manufacturing, and earnings from Apple (AAPL), Amazon (AMZN), Intel (INTC), Booking Holdings (BKNG), ConocoPhillips (COP), Cigna (CI), Southern (SO), and Hershey (HSY).

August 2: Earnings from Exxon Mobil (XOM), Chevron (CVX), Linde PLC (LIN), and Fluor (FLR).