NASDAQ 100, Dow Jones, S&P 500: Optimistic Earnings Fuel Investor Hopes

Highlights

• July rally driven by encouraging company earnings and economic resilience.
• Investors await tech giants’ reports and key economic data for insights.
• Market shows optimism with Citigroup’s raised S&P 500 targets.

Overview

Wall Street’s July rally has been driven by encouraging company earnings and optimism surrounding the U.S. economy’s resilience, while tamed inflation sparks hopes of a possible rate-hike pause. As the month concludes, investors eagerly await quarterly reports from tech giants like Apple, Amazon.com, and AMD, along with key economic data such as the July ISM Manufacturing reading and non-farm payrolls.

Although second-quarter earnings for S&P 500 companies are estimated to have fallen 6.4% year-over-year, this is an improvement from the 7.9% drop projected earlier.

“We’ve wrapped up a solid month… and we’re at a point in time where we clearly have seen enough of the earnings reports to know that they’re going to come in better than feared,” remarked Art Hogan, chief market strategist at B Riley Wealth.

The Nasdaq, driven by megacap growth companies like Alphabet and Meta Platforms, led the market higher last week. If economic data shows a plateau in manufacturing activity without a significant decline in job creation, the “soft landing” narrative may remain firmly on the table.

Citigroup raised its 2023-end and mid-2024 S&P 500 targets to 4,600 and 5,000, respectively, indicating an increased likelihood of a soft landing. With the benchmark index just 4.9% away from its all-time high, the market appears optimistic about future prospects.

Federal Reserve President Austan Goolsbee expressed confidence in the central bank’s handling of inflation, aiming to bring it down without causing a recession. Further monetary tightening may be considered in September, depending on upcoming data.

While most sectors gained ground, energy stocks showed particular strength with a 1.7% rise. SoFi Technologies saw a significant surge of 20.9% in its stock price after reporting better-than-expected quarterly revenue, and ON Semiconductor impressed investors with its third-quarter revenue forecast above market estimates.

However, some companies faced headwinds, including Johnson & Johnson, whose shares declined 2.8% due to unresolved lawsuits over its talc products. Electric-vehicle maker Xpeng experienced a setback as UBS downgraded the stock to “neutral,” causing a 11.6% drop in U.S.-listed shares. Conversely, Adobe outperformed its tech peers with a 3.5% gain, buoyed by Morgan Stanley’s upgrade to “overweight” on the photoshop maker.

Overall, the market showed strength with advancing issues outnumbering decliners by a considerable margin on both the NYSE and Nasdaq. The S&P index and Nasdaq recorded numerous new 52-week highs, indicating positive sentiment among investors.

As we approach August, investors will closely monitor corporate earnings, economic data, and central bank actions to navigate the market’s bullish or bearish short-term forecast.