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U.S. stock indexes ended mixed on Friday in choppy trade, though the Dow Jones Industrial Average extended a winning streak to 10 days, while investors dealt with the monthly expiration of trillions of dollars of stock options and prepared for a major rebalancing of the Nasdaq-100 index on Monday ahead of the Federal Reserve’s July policy meeting next week.
The S&P 500 logged a 0.7% weekly gain, while the Dow industrials advanced 2.1% but the Nasdaq Composite declined by 0.6% for the week, according to Dow Jones Market Data.
What drove markets
The Dow Jones Industrial Average Friday rose for a 10th straight session to log its longest winning streak since August 7, 2017, according to Dow Jones Market Data.
The “catch-up” rally in the Dow industrials has occurred in spite of sporadic weakness in market-leading technology shares over the past couple of weeks.
Tavi Costa, portfolio manager at Crescat, told MarketWatch in an interview that the recent pullback in technology shares is an early sign of a rotation to value from richly valued growth names.
“I think we’re seeing the beginning of potentially a larger move to the downside that will be driven by tech and megacap stocks,” Costa said.
See: Tesla and Netflix shares face several weeks of weakness, stock charts warn
Barring a sizable selloff, most U.S. stock indexes finished higher this week, even as individual stocks at times responded poorly to results from companies like Netflix
NFLX,
Taiwan Semiconductor Manufacturing
TSM,
Tesla
TSLA,
and IBM
IBM,
Corporate earnings reports for the second quarter have been mixed so far. With 18% of S&P 500 companies reporting actual results, about 75% of which have already reported exceeding analysts’ expectations, according to FactSet data, though overall earnings are likely to fall for the third quarter in a row. The fourth quarter last year saw profits down 4.7%, the first quarter this year saw a fall of 2.0%, and the current quarter is forecast to see earnings fall 9.6%.
“The bears were finally able to find some solace in the market’s reaction to Tesla’s earnings, and again Netflix, although their numbers certainly weren’t dire. It was that the market wasn’t going to reward Tesla’s softer opening margins or that prices would be cut again during ‘turbulent times,’” said Quincy Krosby, chief global strategist at LPL Financial.
“The current market is priced for perfection. When a company comes out, beats, and guides higher, it still can go down if there are any concerns or worries,” said Louis Navellier, the chairman and founder of Navellier & Associates, pointing to Tesla’s results in particular.
“There also seems to be a little anxiety on some of the top tech stocks as they are going to get a haircut on Monday on the Nasdaq realignment,” added Navellier. Nvidia
NVDA,
and Microsoft
MSFT,
are the most affected by the Nasdaq rebalancing.
Navellier was referring to the Nasdaq-100 index rebalancing, which will take place Friday after the close and be effective for Monday’s open, as well as the expiration on Friday of some $2.3 trillion of U.S.-listed options.
See: Nasdaq rebalancing is coming, and it’s boosting interest in Friday’s $2.3 trillion option expiration
“When there are a lot of positions out there that need to be readjusted, you could see some of that movement flow into the stock market. These days there are a lot of people speculating on options, open interest is higher than usual,” said Callie Cox, U.S. investment analyst at eToro, during a phone interview with MarketWatch.
“On option expiration days, you need to be on guard for bigger moves, there’s a lot happening below the surface,” she added.
“Given the volume of stock, we expect there to be for sale in the top-heavy Nasdaq 100, coupled with the performance of these mega cap tech names in 2023, there’s a chance we could see some exacerbated downside moves along with elevated volatility for most of Friday’s trading session,” said Greg Bassuk, chief executive officer at AXS Investments.
See: Everyone thinks the Fed’s rate hike next week will be the final one — except the Fed
Financial-market investors fully expect the Fed to raise interest rates again after next week’s policy meeting, but then take a long pause until the November meeting, and Fed chair Jerome Powell’s comments next Wednesday may even suggest that the July 26 move is a “one and done.” The Fed will meet next Tuesday and Wednesday. The central bankers will release a policy statement announcing their decision Wednesday at 2 p.m. Eastern, while Powell will hold a press conference at 2:30 p.m..
However, market analysts think next week’s mega-cap technology company earnings and guidance may prove to be even more important than the Fed meeting.
“If the bears have their way next week, with company specific weakness disciplined by the market, they will have declared victory that rich mega-tech valuations have been priced for perfection that even an adoring market can’t reward,” said Krosby.
Companies in focus
-
Dow component American Express
AXP,
-3.89%
ended 3.9% lower on Friday after reporting net income of $2.17 billion, or $2.89 a share, compared with $1.96 billion, or $2.57 a share, in the year-earlier quarter. Analysts tracked by FactSet were looking for $2.81 a share. -
AutoNation Inc.’s stock
AN,
-12.33%
dropped 12.3% after the new and used car retailer posted better-than-expected second-quarter earnings. -
Shares of Regions Financial Corp.
RF,
-3.10%
were 3.1% lower after reporting Friday second-quarter profit that was in line with expectations as revenue rose slightly above views, and as deposits dropped more than 8%. -
CSX Corp
CSX,
-3.71%
shares fell 3.7% after the railroad operator reported second-quarter sales that missed expectations, dragged by lower fuel and coal prices and weaker shipping volumes. -
Schlumberger Ltd.
SLB,
-2.18%
shares shed 2.2% Friday, after the oil driller reported second-quarter profit that topped expectations but revenue that came up a bit short.
Steve Goldstein contributed
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