Anticipating Inflation: Mixed Market Mood Precedes Crucial Data and Earnings Season


Simpler Trading Team

Jul 10th 2023  .  6 min read

The Market Open 

The week started with mixed signals in the stock market. With key inflation data and the start of the second-quarter earnings season on the horizon, the market appeared to be in a waiting game. The influence from the Asian markets also suggested cautious optimism, where China’s missed inflation expectations added a layer of uncertainty regarding the strength of the economic rebound. This cautious sentiment continued from the overnight market into the day’s trading session.

Sectoral Swings: The Market’s Highs and Lows

The market landscape saw various sectors strutting across with distinct performances. The Industrials sector displayed resilience amid a volatile market, supported by a strong rebound in factory activities and robust demand for machinery and equipment. The Health Care sector enjoyed a boost as biotechnology companies and healthcare equipment providers demonstrated impressive gains.

Financials made commendable strides due to positive market expectations for the upcoming earnings season, with investors hopeful about the sector’s profitability. With crude oil prices still on a higher trajectory, the Energy sector reaped the benefits, while the Consumer Staples sector witnessed an upswing due to heightened demand for household necessities in a time of economic rebound.

On the flip side, the Communication Services sector found it difficult to build momentum, primarily due to the slump in advertising revenue and increased competition in the streaming market. Information Technology stumbled, weighed down by the increasing regulatory scrutiny and geopolitical concerns.

The Utilities sector, generally considered a safe haven, couldn’t withstand the market’s turbulence, as rising commodity prices squeezed profit margins. Meanwhile, the Consumer Discretionary sector struggled, with major retailers facing challenges from supply chain disruptions and inflationary pressures.

Nasdaq 100 (NDX) Set for a Special Rebalance

A significant reshuffling is on the horizon for the Nasdaq 100 (NDX), scheduled to take effect on Monday, July 24th. The NDX is heavily influenced by several industry titans such as Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Amazon (AMZN), and more, which have, over time, amassed considerable weight within the index. As a result, the upcoming rebalancing act is drawing much attention from investors and market watchers alike.

In a fascinating twist of events, we’re currently witnessing an internal rotation within the PowerShares QQQ ETF (QQQ), which closely tracks the NDX. Major investors are diverting funds from the established tech behemoths and channeling them towards smaller, yet promising names like Broadcom Inc. (AVGO), Cisco Systems, Inc. (CSCO), and PepsiCo Inc. (PEP). This shift in investment patterns has stirred the waters and ignited discussions about how long this rebalancing period might continue.

Earnings Season: High Hopes For Financials

The start of the earnings season, a significant event for any market watcher, looms large. It is during these few weeks that public companies report their quarterly earnings, giving a peek into their financial health and future outlook, often setting the tone for the market direction.

This time around, expectations run high for financial sector behemoths such as BlackRock (BLK), JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C). As they gear up to report their quarterly figures, market participants will be waiting eagerly for a hint of their future course. Market watchers will be closely observing how these financial giants have fared in the face of fluctuating interest rates and potential regulatory challenges.

As we cast our eyes towards the much-anticipated earnings season, it’s vital to equip ourselves with the best management strategies, especially for those with small accounts. In this regard, we have created a powerful webinar titled “The Bulletproof Small Account”, scheduled for July 12th at 7:00 PM Central. This event promises expert guidance on navigating market volatility and growing your small account. In a season where financial behemoths reveal their cards, ensure that your small account is not left exposed. Secure your free spot today and prepare to bulletproof your financial future!

All Eyes on CPI and PPI Numbers

In the economic panorama, June’s inflation data from the United States takes center stage as a crucial area of focus. The metric under the microscope is the Consumer Price Index (CPI). Serving as a gauge of the average fluctuation in the costs that consumers bear for a diverse assortment of goods and services over time, the CPI holds immense significance in understanding the pulse of the economy.

Forecasts suggest a potential drop to 3.1% in the CPI, which, if actualized, would mark the lowest point since March of 2021. This decline could reveal essential clues about the state and pace of the economic rebound following the pandemic-induced slowdown. Furthermore, it may give us an intriguing glimpse into the potential direction of future policy decisions by the Federal Reserve.

Meanwhile, the Producer Price Index (PPI), another critical inflation measure, will also be released. The PPI tracks the changes in selling prices received by domestic producers for their output. Any significant movement in this index may influence investor sentiment and impact market dynamics.

The credit landscape will be revealed through consumer credit data, highlighting consumer borrowing trends. The anticipated decrease in nonrevolving credit could signal a potential tightening in lending standards and weaker demand for credit. Such trends often have wide-ranging implications on consumption and investment behaviors.

Lastly, government bond yields will also command attention. They have held steady today after spiking last week due to strong economic data. The movement of bond yields can offer valuable insights into the overall market sentiment and the economy’s health, thereby steering investor strategies.

The Closing Bell: A Snapshot of Market Indices

As the day drew to a close, the benchmark indices gave us a succinct summary of the day’s proceedings.

The Dow Jones Industrial Average finished a volatile trading day with an uptick, closing at 33,944.40. From an intra-day low of 33,705.68, the Dow Jones bounced back to touch an intra-day high of 33,958.36 before settling. The day’s gain of 209.52 points represented a 0.62% improvement from the previous day’s closing.

Meanwhile, the S&P 500 continued to showcase its resilience against the market’s erratic behavior. The index started the day at 4,410.41, saw a low of 4,390.13, and peaked at 4,412.88, reflecting the day’s range of market movements. The S&P 500 ended the day with a moderate gain of 11.46 points, marking a 0.26% increase from its previous close.

The tech-heavy Nasdaq also trended upwards, albeit with a modest gain. Starting at 13,685.48, the index dipped to a low of 13,584.87 before hitting a high of 13,692.41. Closing the day with a gain of 24.77 points, the Nasdaq ended the trading day up by 0.18%.

Showing the highest percentage gain of the day was the Small Cap 2000, which started the day at 1,895.80, plunged to 1,856.55 but made an impressive recovery to close the day right where it started, at 1,895.80. This climb represented a significant 1.67% gain on the day.

The market’s ‘fear gauge’, the S&P 500 VIX, had its share of fluctuations throughout the day. Starting at 15.06, it soared to 16.21, reflecting the market’s moments of heightened volatility, and fell to 15.04 before ending the day at 15.06 again. Despite the day’s ups and downs, the VIX index registered a marginal increase of 0.23 points or 1.55%.