Remember May and June? During those months, the S&P 500 would regularly gain or lose 1% in a day. After June 24 volatility dried up and the S&P 500 steadily marched higher.
Stock traders said goodbye to July with a big reversal day — a new high followed by a selloff that saw the benchmark index end nearly 0.4% lower. Not a big loss for the day, but it was an indication that things had changed.
August came in like a lion, with traders selling stocks. The S&P 500 lost 1.6% and the tech-heavy Nasdaq dropped 2.2%. Big moves to end a July that had been up and to the right.
Nasdaq Composite Index February 4th through August 1st
What gives? The economy appears to be softening and unemployment is ticking higher. All while the S&P 500 is overvalued.
As Stephen “Sarge” Guilfoyle reports over on TheStreet Pro, the Atlanta Fed revised its GDPNow model for Q3 down to 2.1% from 2.3%. The S&P 500 is trading at 22.2 times forward earnings, which is 10% above the five-year average. Stocks are priced for perfection.
That said, earnings season, which is more than halfway over, has been a good one so far: 82% of S&P 500 constituents have beaten earnings estimates and 79% have topped revenue numbers. Year-over-year earnings growth is estimated at 10%.
At the same time we’re only beginning to see the impact of the Trump administration’s tariffs. Our sister publication, Autoblog, yesterday reported that tariffs ate all of Ford’s (F) profits for the second quarter. Ford will pay $3 billion to the U.S. government, despite its standing as “the most American automaker.”
GM (GM) was hit with even higher tariffs, predicted to be $4 billion to $5 billion this year, causing a $1.1 billion loss in Q2.
Ford makes around 80% of its cars in the U.S. but pays tariffs on imports of vehicle parts as well as steel and aluminum.
What to expect today
Today, futures are indicating a bounce. The S&P 500 futures are up 0.6%, while Nasdaq futures are up 0.8%.
Berkshire Hathaway (BRK.B) is trading lower following a $3.8 billion impairment on its holdings of Kraft Heinz. The company’s earnings were 31% below Wall Street expectations, on revenues that were in line with estimates.
After the close, we’ll hear from Palantir (PLTR) . Analysts expect $0.14 EPS on revenue of $939 million.