The Big Market News You Need to Know About This Week Dear Reader, There has been a wide array of market news this week.
From the July Federal Open Market Committee (FOMC) meeting, Big Tech’s earnings results and the NASDAQ rebalance, there is a lot to cover. So, in today’s Market 360, we’ll review the major market news from this week. Then we’ll discuss something else that’s been disrupting the market lately.
Let’s dive in… The FOMC Meeting On Wednesday, the Federal Reserve raised key interest rates by 25 basis points at its July FOMC meeting. This puts the federal funds rate at a 22-year high. The FOMC statement included: The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent … In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. And at Fed Chairman Jerome Powell’s press conference afterwards, he stated: Since early last year, the FOMC has significantly tightened the stance of monetary policy… We have covered a lot of ground, and the full effects of our tightening have yet to be felt. Looking ahead, we will continue to take a data-dependent approach in determining the extent of additional policy firming that may be appropriate. I should also add that Powell had an interesting response to a Bloomberg reporter who asked if the Fed staff still anticipated a recession or if it can achieve a “soft landing”: So, it has been my view consistently that we do have a shot. And my base case is that we will be able to achieve inflation moving back down to our target without the kind of really significant downturn that results in high levels of job losses that we've seen in some past instances … So the staff now has a noticeable slowdown in growth starting later this year in the forecast. But given the resilience of the economy recently they are no longer forecasting a recession. Now, while I’m not happy the Fed raised rates, what I do like from these rate hikes is the two-year Treasury yield has slipped quite a bit. This means that the bond market thinks that the Fed is done raising rates. In my opinion, the Fed will start to cut rates in December, and they'll continue into next year.
Nobody knows really where they'll end up, but maybe they'll go to 3% or so. Either way, the FOMC statement and Powell’s comments during his press conference were very dovish. That's why the two-year Treasury yield declined and why the market firmed up. Big Tech Release Their Earnings As we reviewed yesterday, Big Tech has begun releasing their earnings results. This includes three of the “Magnificent Seven” this week: Alphabet Inc. (GOOG), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT). The other members of the Magnificent Seven are Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), NVIDIA Corporation (NVDA) and Tesla, Inc. (TSLA).
Tesla announced its results last Wednesday, and Apple and Amazon are slated to reveal their latest numbers next Thursday afternoon. NVIDIA won’t report its quarterly results until August 23.
Here’s a quick recap of Alphabet’s, Meta Platforms’ and Microsoft’s earnings from this week… - Alphabet: Reported earnings per share of $1.44 and revenue sales of $74.6 billion
- Meta Platforms: Reported earnings of $2.98 per share and revenue sales of $31.9 billion
- Microsoft: Reported earnings of $2.69 per share and revenue sales of $56.2 billion
Next Thursday, Apple is expected to post third-quarter earnings of $1.08 per share, down from $1.20 per share in the same quarter of last year. Revenue is estimated to decline 11.2% year-over-year to $73.69 billion, down from $82.96 billion in the year prior.
Amazon is projected to report earnings of $0.32 per share, up from an earnings loss of $0.20 per share in the same quarter a year ago. Revenue is expected to come in at $118.67 billion, down from revenue of $121.23 billion in the same quarter last year. That translates to 260% year-over-year earnings growth and a 2.14% year-over-year revenue decline. The NASDAQ Rebalance On Monday, the NASDAQ rebalanced its popular NASDAQ 100 index to “address over concentration in the index by redistributing the weights”. Now, there were no additions or deletions, so the NASDAQ 100 stocks outside of the Magnificent Seven should benefit from persistent institutional buying pressure.
This rebalance is actually intended to allow the NASDAQ 100 to stay in compliance with the SEC diversification rule that limits the aggregate weight of the largest stocks with 5% or more weights to 50%. On June 3, these seven companies accounted for 50.9% of the NASDAQ 100, which triggered the NASDAQ to announce a “special rebalance” for the first time ever to comply with the SEC diversification rules. Now, part of the reason why the Magnificent Seven held such giant weightings in the NASDAQ is due to the artificial intelligence (AI) craze. Following the release of ChatGPT in November 2022, tech stocks – especially the ones that stand to benefit the most from AI – caught fire.
AI has stolen the headlines for a while now (I’ve also spoken extensively about AI in past Market 360 articles) as the technology continues to evolve and companies look to find ways to incorporate AI into their offerings and services. For example… - In the transportation sector, we are moving towards fully autonomous self-driving cars.
- In the healthcare sector there is now AI-assisted robotic surgery.
- In the retail sector, you can now “try before you buy” at home with AI tools.
The AI Impact For all the potential growth of AI, there's a very destructive side that will catch millions of people off guard... based on new research and warnings from my proprietary computers, I believe you now have 60 days or less to “AI-proof” your savings and retirement accounts.
That’s why I recently teamed up with my fellow InvestorPlace colleagues Eric Fry and Luke Lango. We want to help investors get on the right side of this disruptive market and profit from it.
On Thursday, during our special AI Impact Event, we laid out the exact steps you need to take immediately if you’re going to survive what comes next. We also gave away a free special recommendation. It’s not a normal recommendation… but that’s what makes it so potentially lucrative.
This will likely be the most serious and timely message we’ve ever shared on camera, so you’ll want to watch the replay of the AI Impact Event if you missed it on Thursday.
You can click here to watch the replay now.
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