Wall Street rebounds this Thursday in a session in which the S&P 500 and the Nasdaq They manage to come back supported by a good GDP dataafter living an exceptionally bad day.
And it is that The technology index had its worst session since October 2022 on Wednesdaywhile the world's largest stock index recorded its biggest drop since December of that same year«The harsh punishment received by the large technological and 'growth' stocks, penalized by the poor reception that the results of the technology companies received, ended up dragging down practically the entire market yesterday, Only the defensive sectors were saved from burning.such as utilities, healthcare, energy and basic consumption, which were the only ones that ended the day with slight advances,» said Juan Fernández-Figares, director of analysis at Link Securities.
THE EXISTENTIAL CRISIS OF BIG TECH
As we say, the recent falls seen in the market have a clear culprit: the technology companies. More specifically, the results of these companies, with the quarterly accounts of Alphabet and those of Tesla the main causes of the latest collapse in US equities. On the one hand, The electric car manufacturer saw its profits fall by 45%although it met expectations in terms of revenue. On the other hand, the parent company of Google and YouTube earned 28% more and raised its forecasts, but advertising revenue and the company's high level of spending clouded the accounts of the technology. The figures of both companies led other technological giants such as Nvidia or Microsoft to close with heavy losses, as well as other companies that have greatly benefited from the rally in artificial intelligence (AI). Many analysts point out that these movements could be an overdue correction of an overbought marketas they have been warning for some time, that is being experienced a rotation out of mega-cap tech stocks into smaller, more cyclical stocks. In fact, many attribute this trend to the fact that many technology companies are not meeting market expectations in, to date, an earnings season in which Many companies have not measured up (LVMH, Kering, Total Energies…). This trend could accelerate in the coming weeks, as around 25% of S&P 500 companies have already filed their accounts, according to FactSet data. «The prospect of increased AI spending is a problem even for investors in companies that stand to benefit from that spending. This harsh market reaction to Google's results – which, by the way, were a success – indicates that we are reaching a point in the AI rally where Investors are increasingly impatient to see their massive spending turn into profitswhile big investors continue to say that they should spend more before seeing the benefits. Therefore, Goal –which could also be telling its investors that more spending awaits it– also fell by more than 5% yesterday,» says Ipek Ozkardeskaya, senior analyst at Swissquote Bank, which predicts losses of between 10% and 15% if the results of other 'big tech' companies fail to turn the tide. This expert also points out that The prospect of a less hawkish Federal Reserve (Fed) is not helping either to these values. «The fact that expectations of interest rate cuts are increasing is not positive for the big technology stocks, since these giants were considered a safe place to take refuge when the rates were highand could see their progress fade due to a sector rotation,» he stresses. Kathleen Brooks, research director at XTB, goes further and speaks of a «existential crisis» in the market, which has a number of questions on the table that could threaten the stock market rally this year if profit prospects remain weak. Among these risk vectors, this analyst names the weakness of Chinese demand, Uncertainty surrounding the US electionsthe crisis in the German manufacturing sector or the already mentioned problems of technology companies and their results. «Overall, the earnings season for the Eurotoxx 600 index has been patchy at best: less than half of the 600 sectors have reported an increase in earnings. This situation is understandably worrying for investors. In the US, earnings reports have been better than expected, and most sectors are recording positive growth,» he explains. However, Brooks adds, Concentration risk is «coming to the fore»as the CrowdStrike and Microsoft incident recently demonstrated. «The triggers for the sell-off in US stocks are the end of the 'momentum trade' and the aversion to growth companies. Until these factors stabilize, it is difficult to foresee a recovery of the US indices.«, he says.
KEY DATA ON GDP AND FED
In the macroeconomic scene, the most relevant data of the day has been the United States Gross Domestic Product (GDP)which has grew by 2.8% in the second quarter from 1.4% in the previous quarter and above the 2% consensus estimate. «The pause in the economy during the first three months of the year proved temporary and the reacceleration of GDP growth in the second quarter should help temper concerns about the durability of the expansion already calm the rumors that the Federal Reserve (Fed) needs to cut interest rates in July,» they value at Oxford Economics. The data will serve as a prelude to the PCE price indexalso known as the private consumption deflator, the Fed's favorite indicator to guide its monetary policy. The market expects a moderation of the June figure to 2.4% from 2.6% previously and also a cut in the core rate to 2.5% from 2.6% previously. «The US yield curve steepened yesterday, as the 2-year yield fell below 4.45% for the first time since February, while the 10-year yield took the opposite direction and rose to 4.30%, narrowing the gap between the two to just 15 basis points, the smallest since October 2023,» notes Ipek Ozkardeskaya. According to this analyst, this factor is nothing but «a confirmation that investors see the Fed lowering its rates earlier and faster than expected.»The consensus is for two, maybe three, rate cuts this year, with the first in September.but the odds of a rate cut next week are on the rise since former New York Fed chief Bill Dudley called for lower rates as preferable at next week's meeting,» he adds. «Activity in Fed funds futures prices the probability of a hasty rate cut next week at less than 7% and, given that The Fed has no reason to rush and lower ratessuch as banking stress or abnormally soft economic data, I think We will still have to wait until September to see the Fed cut rates for the first time this year«, he said. Investors have also been waiting for the publication of the weekly unemployment data that have fallen to the 235,000 in the week of July 19, compared with 245,000 applications in the previous seven days. According to Fernandez-Figares, the recent performance of the US labor market «is beginning to worry many analysts and investors, as it has shown signs of some weakness.»
OTHER MARKETS
In other markets, the euro is appreciated against the dollar (+0.20%, $1.0861). The Petroleum crude oil rises 0.5% Brent is exchanged for 82.08 dollars and the West Texasfor 78 dollars. The ounce of gold falls 1.7% to $2,374 and the silver It drops 4.4% and falls back to $28.02. 10-year US bond yield falls to 4.244%. The bitcoin cut to $64,000 and the ethereum falls 6% to $3,160.