Stock markets ended the week on a positive note, regaining some of the losses from earlier in the week. The S&P 500 and Nasdaq Composite closed higher on Friday, with the Russell 2000 continuing its rally with a 6.5% weekly gain. Bonds also saw a rally, with the yield on the 10-year benchmark ending the week at 4.18%. The positive market performance was a relief after a turbulent week filled with uncertainties.
Earnings season kicked off with reports from major banks such as Citigroup, JP Morgan, Wells Fargo, and Goldman Sachs. Expectations for second-quarter earnings growth were initially forecasted at 8.8%, but after the reports from 27 companies, estimates were revised up to 9.3%. The lofty expectations for the earnings growth rate, ranging from 12-16%, suggest that stocks are trading above their historical valuation levels, creating a potential gap if actual earnings fall short of expectations.
In addition to earnings reports, there are key economic events to watch this week. Federal Reserve Chair Powell is scheduled to speak, Retail Sales data will be released, and members of the Fed will provide insights throughout the week. The latest GDP number from China came in at 4.7%, reflecting weaker than expected economic data. Market participants are closely monitoring discussions about potential rate cuts by the Fed, especially given the current economic conditions.
The Republican National Convention taking place this week could bring added volatility to the markets, as investors assess any new platform initiatives that may impact various industries. Individual stock movements also made headlines, with Google parent Alphabet in talks to acquire cloud cybersecurity firm Wiz for $23 billion, Burberry Group issuing a profit warning, and Blackrock missing on revenues but beating on earnings. Goldman Sachs beat estimates, while Super Micro Computer is set to replace Walgreens Boots Alliance in the Nasdaq 100.
Looking ahead, investors are keeping an eye on premarket gains, continued rotation into small-cap stocks, and potential market implications of the upcoming election. Former President Trump’s popularity in the election race could have implications for industries such as energy and finance. Bitcoin rallied nearly 9% following the weekend events, indicating potential market reactions to political developments. Despite the market uncertainties, sticking to long-term investment plans and objectives is recommended for investors.
