Weekend Update #241
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Equity markets gained this week, rebounding from last Friday’s labor market-driven selloff, as earnings results demonstrated a resilient underlying demand environment. For the first time in 18 years, post-earnings stock volatility rose above the options-implied expectations, demonstrating the extent of volatility this earnings season. Dip buying on Monday set off a good start to the trading week, with megacap tech companies leading gains. The shift in sentiment came just as Wall Street strategists warned of 10-15% drawdowns in the S&P 500 in the quarter as tariffs come into effect.
News around the Federal Open Market Committee drove headlines this week as President Trump appointed Stephen Miran to serve as a temporary Fed Governor, replacing Adriana Kugler. The administration broadened its search for a new Fed Chair to include James Bullard and Marc Sumerlin, in addition to Christopher Waller, Kevin Hassett, and Kevin Warsh. The new Trump appointees are expected to shift influence in the FOMC toward the president’s desire for lower interest rates. Compared to a market-implied year-end interest rate of 4.00% at the end of July, the combination of weaker labor market data and President Trump’s FOMC action has driven expectations to 3.75%. Next Tuesday’s July CPI report will also serve as an important indicator of balance among unemployment and inflation risks for the Federal Reserve.
In economic data for the week, ISM Services PMI showed activity slowing significantly below economists’ expectations in July, with contraction in employment, slowing in new order growth, and acceleration in pricing painting a poor picture. Initial Jobless Claims for the week ended August 2nd were higher than estimated at 226,000, with continuing unemployment claims reaching a November 2021 high of 1.97 million.
In stock-specific news, Palantir extended year-to-date gains to 149% on its largest quarterly revenue growth since its IPO, showcasing accelerating demand for its technology across government and corporate clients. President Trump called for the CEO of Intel, Lip-Bu Tan, to resign immediately based on the narrative that personal conflicts of interest and lack of fit for the role are harming the U.S. chip manufacturing industry. In a separate action on semiconductors, President Trump announced a 100% tariff rate on semiconductor imports for any company that is not investing significantly in U.S. manufacturing. Apple was highlighted for its $100 billion investment commitment, which the president stated would enable the company to bypass that tariff rate.
Friday’s Close (Weekly Performance)
S&P 500 6,389.45 (+2.43%)
Nasdaq 21,450.02 (+3.87%)
Dow Jones 44,175.61 (+1.35%)
Thank you Blue Room Senior Analyst JARED FENLEY
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