Economic outlook and market fatigue
Federal Reserve Chairman Jerome Powell acknowledged during congressional testimony this past week what many Australians are already aware of.
The economy is stable, but it’s experiencing fatigue. Employment opportunities are somewhat scarcer. Inflation ranges from being a minor irritation to a significant problem.
Let’s talk about the stock market. Its significant surge since October has been so rapid and strong that investors, financial managers, and even ordinary people feel that it might be a bit overdone. Perhaps a break would be beneficial.
Alternatively, some experts have proposed that the market environment might be transitioning into a market constituted by individual stocks.
The upcoming week has the potential to calm the markets, given that earnings season is intensifying and numerous economic reports will be released.
Following a period where the S&P 500, Nasdaq, and Nasdaq-100 indexes reached all-time highs and appeared significantly overvalued, Thursday saw an unexpected decline in technology stocks.
Tesla’s 8.4% drop triggered the downturn, marking its largest single-day fall since January, following a report that the company might postpone its August 8 robotaxi reveal.
That led to a halt in the rallies of the S&P 500, Nasdaq, and Nasdaq-100 indexes, following a rise in 10 of the previous 11 days for each.
On Friday, the Dow Jones Industrial Average closed at 40,000.90, marking an increase of 247 points and its second time ever closing above 40,000.
At 1:49 p.m., however, the Dow reached a record intraday high of 40,257.24, an increase of 503 points.
“Sell. It’s time to unwind.”
The average properly declined by 257 points as the market closed.
The widely accepted definition of a correction is when there is a drop of 10% or more from a recent peak. A bear market is essentially a more significant correction.
The most recent significant correction occurred from the market peak in November 2021 to the trough in October 2022. During this period, the S&P 500 fell by 24%, marking a true bear market.
- S&P Midcap 400: Price-to-Earnings (P/E) ratio stands at 15.5
- S&P Smallcap 600: Price-to-Earnings ratio of 14.6
Important earnings and economic reports
Federal Reserve Chair Powell is set to engage in a Q&A session with the Economic Club of Washington this Monday. This occasion might offer additional clarity on the Fed’s perspectives and its possible implications for the Australian economy, particularly considering the interconnected nature of our financial markets.
The retail sales report is scheduled for release on Tuesday, and analysts anticipate minor decreases. The decline in gasoline prices is expected to influence the outcomes, but the Australian retail sector will be monitoring the situation carefully. Notable changes in U.S. consumer spending can impact Australian exports and retail stocks.
The June report on building permits and housing starts, expected on Wednesday, is likely to indicate slight decreases due to increased mortgage rates deterring home buyers. This holds particular significance for Australian property market investors, as comparable trends may develop locally if interest rates persist in climbing.
Thursday’s primary economic indicators are anticipated to drop by approximately -0.3%. This information will be essential for Australian businesses and investors to assess the overall economic well-being and forecast potential future trends. A decline might indicate an economic slowdown, impacting various factors such as consumer confidence and investment plans.
Regarding earnings, Monday begins with major players such as Goldman Sachs and Blackrock. Australian financial institutions and investors will be paying close attention to their performance due to their substantial impact on global markets.
On Tuesday, earnings reports from UnitedHealth Group, Bank of America, Morgan Stanley, and Charles Schwab are anticipated. These announcements will give a thorough perspective on the financial and healthcare sectors, both of which carry significant implications for Australian investors and businesses.
On Wednesday, earnings reports from ASML, Johnson & Johnson, and Elevance Health Inc. will be released. ASML’s performance will draw particular interest from those in the technology sector, while Johnson & Johnson’s results will serve as a key indicator for healthcare stocks. Additionally, Elevance Health Inc.’s earnings will be closely examined for insights into the health insurance industry.
