In a notable shift within the US equity markets, indexes concluded the week on a mixed note. Investors capitalized on profits from leading mega-cap technology and communication services stocks, while strategically reallocating assets towards sectors such as utilities, healthcare, and industrials. This shift in investment strategy comes in light of the increasing anticipation of a potential interest rate cut by the Federal Reserve, with analysts expressing near-certainty that such a development may occur in September. The Dow Jones Industrial Average saw a positive trajectory, closing at 40,589.34 on Friday, up from 40,287.53 just a week earlier.
Conversely, the Nasdaq Composite faced challenges, closing at 17,357.88, down from 17,726.94 in the previous week. The S&P 500 also fell, finishing the week at 5,459.10, compared to 5,505.0 the week prior. Prominent tech giants Tesla and Alphabet reported disappointing quarterly results this week, exerting downward pressure on both the Nasdaq and S&P 500 indexes.
This has raised concerns among investors regarding the future performance of the so-called "Magnificent Seven" stocks, which have been pivotal in driving market momentum. Other notable stocks including Advanced Micro Devices, Nvidia, Qualcomm, Meta Platforms, and Apple also faced declines, indicating a broader trend within the technology sector. Despite the troubles within the tech space, the utilities, healthcare, and industrials sectors emerged as the week’s top performers.
Over the course of the month, technology and communication services have witnessed the steepest declines, underscoring a significant rotation out of these two sectors that have contributed substantially to the gains seen in the S&P 500 and Nasdaq indices year-to-date. In the bond markets, Treasury yields experienced downward movement across most maturities, signaling a potential economic slowdown that might prompt the Federal Reserve to ease its monetary policy.
By the end of the week, the yields for the 10-year and two-year notes were trading at 4.19% and 4.39%, respectively, indicating a weekly drop. Recent economic indicators showed that the personal consumption expenditures price index eased to 2.5% annualized in June, down slightly from 2.6% in May, though it remained above analysts' expectations who had forecasted a 2.4% increase.
Additionally, the Fed's preferred core measure of inflation held steady at 2.6%, showing no change from the previous month, while inflation increased by 0.1% sequentially in June, a rise from May's stagnant figure. Both metrics effectively met the anticipated expectations of economists. The probability of a Federal Reserve interest rate cut in September hovered at an impressive 95% late Friday, as inflation began to show signs of cooling in June following a temporary reprieve in May.
Investors and analysts alike will be watching closely as further developments unfold in the coming weeks..