So after Friday, when the all the stocks in the Standard & Poor’s 500 fell an average 1% and the major averages fell more than 2% in a week, it’s understandable to ask, “OK, now what?”
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Well, there are 1,382 earnings reports to think about. There’s the economy, too. And all the tariff negotiations to consider. Will there be a deal with China? Can Canada kiss and make up with the Trump administration?
How about we think about only a few earnings (we’ll get to them shortly) and some of the forces that may well affect markets more than we expect now.
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Last week was not a good week
The Standard & Poor’s 500 Index managed to hit five straight new closing highs between July 21 and July 28. The index then closed lower each day for the next four days ending with Friday’s bust, with the S&P 500 off 1.6% for the day.
The question is if those four days of selling were one-offs. Let’s look at four realities.
The stock market had become overbought
The indexes and many stocks have been giving off signals for weeks that it was getting to be overbought. Multiples have expanded until something triggered professional money managers to decide to wait for better prices. You saw it Thursday when the Federal Reserve held rates steady and wouldn’t say when a rate is coming. You saw it Friday after reports from Amazon.com (AMZN) and Coinbase Global (COIN) disappointed investors.
The July jobs report was a shocker
Not so much because the jobs created came in less than expected. It was the huge revisions for May and June that enraged President Trump enough to fire the head of the Bureau of Labor Statistics, accusing her of cooking the data to make him look bad. (Without evidence)
And it’s August
This is a month, which, the Stock Traders Almanac tells us, is the worst month of the year for the Dow Jones Industrial Average and second worst month for the S&P 500 and Nasdaq Composite Index.
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People are on vacation
They’re doing back-to-school shopping. They’re worried about wild fires in the West. Along the southern Atlantic and Gulf coasts, they’re watching for hurricanes.
The issue of tariffs won’t get out of the way
China, Mexico and Canada negotiations are moving slowly. And they’re starting to be a problem for many companies that can’t absorb higher costs. Listen carefully when Walmart (WMT) reports earnings on Aug. 21.
All hail the 10-year yield at 4.225%
Last week’s selloff pushed bond yields lower. Especially the 10-year Treasury note, the key determinant of mortgage rates. The rate on a 30-year mortgage was pushing toward 6.6%.
Enough to save a home buyer upwards of $1,200 a year if buying a $300,000 home with 15% down. That assumes buyers and sellers can agree on prices that make sense.
Did it affect stocks last week? It sure did. Shares of D.R. Horton (DHI) jumped 5.2% to $150.30 on Friday as bond yields came down.
Horton, Pultegroup (PHM) , Lennar (LEN) and (NVR) were all sharply higher Friday and led the S&P 500’s Consumer Discretionary Sector. The sector index was down 3.6%, partly because of Amazon’s 8.3% tumble.
Traders work on the floor of the New York Stock Exchange on Aug. 1 as the Dow Jones industrials tumbled amid signs of a weakening economy and President Donald Trump’s modified tariff rates.
Michael M. Santiago/Getty Images
Stocks to watch next week
Start with Palantir (PLTR) , which reports after Monday’s close. The stock fell 2.9% last week, but it is up 13.2% this quarter and 104% this year. This an artificial intelligence play. It takes lots and lots of data and makes sense of it for military and big corporate clients.
Revenue estimate: Earnings of 12 cents a share, up 33%. Revenue of $939 million would be up 38%. It is a pricey stock: Its simple price earnings ratio is 674. Its forward p/e ratio is 328.
More Palantir
- Veteran trader surprises with Palantir price target and comments
- Musk moves xAI, Grok onto Palantir turf
- Veteran analyst sends bold message on Palantir stock target
- Palantir makes surprise move into weather
On the AI vein, chipmaker Advanced Micro Devices (AMD) reports after Tuesday’s close. The revenue estimate is $7.4 billion, up 27.2%. Earnings are projected at 40 cents, but down 42%. Eaton Corp (ETN) , maker of important gear used in AI applications, also reports Tuesday.
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Wednesday brings in consumer stocks, especially McDonald’s (MCD) and Walt Disney Co. (DIS) . Both should have lots to say about what consumers are telling them. Neither is expected to report big earnings and revenue gains.
Eli Lilly (LLY) and Gilead Sciences (GILD) lead the Thursday earnings. The former has a big weight drug Zepound with more in the pipeline. Also reporting Uber Technologies (UBER) , DoorDash (DASH) , Shopify (SHOP) and Airbnb (ABNB) .