Stocks continued to show mixed results this past week, with the S&P 500 and Nasdaq Composite experiencing some losses, while the Russell 2000 small cap index continued to shine with a gain of 1.3%. Earnings season is in full swing, with many big names set to report next week, including Advanced Micro Devices, Amazon, Meta, and Microsoft. Investors are keen to hear about the financial implications of investments in Artificial Intelligence (AI) from these companies and how they plan to monetize these investments.
Macroeconomic data has been a key driver of market volatility this week, with the Gross Domestic Product (GDP) number for the second quarter showing stronger growth than expected at an annual rate of 2.8%. Despite this, expectations for an interest rate cut in September remain high, with nearly 100% probability. Small cap stocks, particularly in the energy and financial sectors, have been benefiting from these expectations, with the Russell 2000 outperforming the S&P 500 by nearly 13% over the past twelve days.
Diving deeper into the economic data, metrics such as nonresidential fixed investment and capital expenditures showed positive signs of economic optimism. This suggests that the economy is healthy and not at risk of recession in the near future. The Personal Consumption Expenditures (PCE) Index, the preferred inflation gauge used by the Federal Reserve, was in line with expectations, with core PCE prices up 2.6% year-over-year. Market expectations for interest rates at year’s end show a 54% chance of rates dropping as low as 4.5%, indicating the possibility of substantial rate cuts in the coming months.
As investors consider the implications of lower interest rates on the market, many are watching large cap and tech stocks closely. The market is experiencing some volatility, with the VIX up 2% from Wednesday and nearly 13% since last week. Looking ahead, the Federal Reserve Open Market Committee (FOMC) is scheduled to meet next week, but no rate changes are expected. With talk focused on the September meeting, investors are eager for any signals from policymakers regarding future rate cuts and their impact on the market.
In the midst of market uncertainty, the Olympics kick off in Paris, providing a welcome distraction and source of inspiration for many. The competition and stories of the athletes can serve as a reminder of the resilience and determination that can inspire us in both our personal and professional lives. Despite the ongoing challenges in the market and geopolitics, it’s important to stay focused on long-term objectives and stick to your investing plan. As the market continues to navigate through volatility and uncertainty, maintaining a steady course and staying informed will be key for investors in the weeks ahead.
