Weekly Trader's Outlook

If you read last week's blog you might recall that I forecasted "Higher Volatility" this week, citing multiple potential market-moving catalysts. We saw both upside volatility, thanks to strong earnings reports from Meta and Microsoft, and downside volatility, primarily due to this morning's soft jobs report, so my forecast turned out to be correct. Additionally, the VIX is up 27% today and at the highest levels since late June.

Last week I also mentioned that we haven't seen a bearish reversal pattern (like a shooting star, dark cloud cover, gravestone doji, bearish engulfing candle, etc.) on the charts, but that changed this week. Yesterday the S&P 500 gapped up to all-time highs and then sold off throughout the day, closing near the lows of the session, which established a bearish engulfing candle pattern on the charts (more on this in the "Technical Take" section below). While there are no guarantees, these types of bearish signals can often indicate a near-term shift in the prevailing trend, so we may be due for a modest pullback in the coming weeks.

On the trade front, U.S. President Donald Trump delivered multiple announcements this week. First, the U.S. and E.U. agreed to a trade framework deal and the U.S. held constructive discussions with China. Currently, there have been seven trade framework deals announced, 62 countries are facing reciprocal tariffs, and the U.S. has a 10% global baseline tariff in place. Trump also announced he is ending the de minimus tariff exemption for global low-cost ($800 or less) goods and signed into law a 50% tariff on copper imports. Lastly, Trump granted Mexico a 90-day reprieve on higher tariffs to provide more time to negotiate but increased Canada's tariff rate to 35% from 25%, effective August 7th. The economic net effect from all these tariff impositions remains unknown, so the topic of trade/tariffs will likely remain in the headlines in the coming months.

On the earnings front, the results continue to be relatively strong. Out of the 329 S&P 500 companies that have reported, 68% have beaten on the top line with an 82% beat rate on the bottom line. Q2 revenue growth is currently tracking at 5.88% year-over-year with earnings-per-share (EPS) growth coming in at 8.50% thus far. This week, mega-cap tech companies Meta Platforms and Microsoft delivered strong results, and the stocks subsequently gapped up to all-time highs as a result. However, Amazon AWS growth underwhelmed and while Apple results were better than expected, the stock is trading down on tariff concerns and doubt around sustainability.

At the time of this writing (1:50 p.m. ET), all the major indices are trading near the lows of the day (DJI - 597, SPX - 107, COMPX - 492) as markets remain in "risk off" mode ahead of the weekend. Stocks had attempted to rebound mid-morning but took another turn lower following a news report that President Trump ordered two nuclear submarines "to be positioned in the appropriate regions" in response to a warning from Russian official Dmitry Medvedev against the U.S. It's only day one, but August appears to be living up to its reputation as a seasonally bearish month for stocks. Along with concerns about a weakening labor market, the other unknown for markets is the potential economic impact from the higher tariff rates. On a positive note, The Federal Reserve is likely to start cutting rates in September (assuming inflation remains in check), earnings have been relatively strong (mostly coming from the tech sector), and the AI secular growth story looks like it still has legs (which suggests continued investment in the space). Next week there won't be a lot of economic data, so the focus will be Q2 earnings, which there will be a heavy dose of across multiple industries. The technical turned bearish this week, and yesterday's bearish engulfing candle (more on this in the "Technical Take" section below) suggests that markets have priced in all the good news, or perhaps its just time to undergo some healthy mean reversion following the massive run in stocks off the April lows. Therefore, my forecast for next week is "Moderately Bearish." In the "Technical Take" section I mentioned that the $DJI appears to be finding support at the 50-day SMA (along with the $SPXEW), but at the time of this writing it looks like that support is being challenged. What could challenge next week's bearish outlook? The S&P 500 is currently down 3.25% from yesterday's open (6,427), which is a sharp pullback in a short period of time. Therefore, we could get a bounce back either in the first half or back half of the week. 

Other Potential Market-Moving Catalysts:

Economic:

Monday (Aug. 4): Factory Orders

Tuesday (Aug. 5): ISM Services, Trade Balance

Wednesday (Aug. 6): EIA Crude Oil Inventories, MBA Mortgage Applications Index

Thursday (Aug. 7): Consumer Credit, Continuing Claims, EIA Natural Gas Inventories, Initial Claims, Productivity – Preliminary, Unit Labor Costs-Preliminary, Wholesale Inventories

Friday (Aug. 8): -no reports-

Earnings:

Monday (Aug. 4): Axon Enterprise Inc. (AXON), BioNTech SE (BNTX), IDEXX Laboratories Inc. (IDXX), MercadoLibre Inc. (MELI), ON Semiconductor Corp. (ON), Palantir Technologies Inc. (PLTR), Simon Property Group Inc. (SPG), Tyson Foods (TSN), Vertex Pharmaceuticals (VRTX), Wayfair Inc. (W)

Tuesday (Aug. 5): Advanced Micro Devices (AMD), Apollo Global Management Inc. (APO), Arista Networks Inc. (ANET), Caterpillar Inc. (CAT), Coupang Inc. (CPNG), Eaton Corporation PLC (ETN), Duke Energy Corp. (DUK), Mariott International Inc. (MAR), Pfizer Inc. (PFE), Super Micro Computer (SMCI), Toast Inc. (TOST)

Wednesday (Aug. 6): Airbnb Inc. (ABNB), AppLovin Corp. (APP), DoorDash Inc. (DASH), Energy Transfer LP (ET), McDonald's Corp. (MCD), Novo Nordisk A/S (NVO), Uber Technologies Inc. (UBER), Walt Disney Co. (DIS)

Thursday (Aug. 7): Atlassian Corp. (TEAM), Brookfield Corp. (BN), ConocoPhillips (COP), Constellation Energy Corp. (CEG), Eli Lilly & Co. (LLY), EOG Resources Inc. (EOG), Flutter Entertainment PLC (FLUT), Parker-Hannafin Corp. (PH), Sony Group (SONY)

Friday (Aug. 8): Avidity Biosciences (RNA), CleanSpark Inc. (CLSK), Essent Group Ltd. (ESNT), Lamar Advertising Co. (LAMR), Plains All American Pipeline LP (PAA), Plains GP Holdings LP (PAGP), Tempus AI Inc. (TEM)

There was a heavy dose of economic data this week, which was highlighted by this morning's disappointing monthly jobs report. The Nonfarm Payrolls headline miss (73K vs. 95K est.) wasn't the story here, it was the 258K negative revision to the prior two months that stood out, bringing the three-month average to less than 40K. We also got a slightly warmer-than-expected annual gain from the core Personal Consumption Expenditures (PCE) Price Index, which is the Fed's preferred inflation gauge. On a positive note, the advanced reading of Q2 GDP came in stronger than expected and Initial Claims continue to be well-behaved. Here's the breakdown from this week's reports:

• Nonfarm Payrolls: Rose by 73K which was below the 95K economists expected. Additionally, there was a significant downward revision to the prior two months of 258K.
• Unemployment Rate: Ticked up to 4.2% from 4.1% in June, but in-line with estimates.
• Average Hourly Earnings: Increased 0.3% (vs. the +0.2% expected) which brings the year-over-year gain to 3.9%.
• Average Workweek: 34.3 vs. 34.2 expected.
• ADP Employment change: 104K vs. 50K expected. This represents the lowest reading since March of 2023.
• Chicago PMI: Increased to 47.1 from the prior reading of 40.4 (note: a number below 50 indicates contraction).
• PCE Prices: +0.3% vs. +0.3% expected, which puts the annual gain at 2.6%.
• PCE Prices - Core: +0.3% vs. +0.3% expected. This represents the largest monthly gain in four months. This puts the annual gain at 2.8% (0.10% above expectations).
• Construction Spending: -0.4% vs. 0.0% expected, representing the sixth straight month of declines.
• JOLTS – Job Openings:  June job openings were 7.437M which was down from 7.712M in the prior month and below the 7.55M expected.
• GDP (advanced reading): +3.0% vs. 2.7% expected.
• Initial Jobless Claims: Declined 4K to 217K versus last week's 221K, and below the 227K expected. Continuing Claims increased 4K from last week to 1.955M, suggesting hiring sluggishness.
• The Atlanta Fed's GDPNow "nowcast" for Q2 GDP was revised down to +2.3% on Thursday from +2.4% last week.

Treasury yields dropped significantly this week, primarily driven by this morning's weak jobs data. Compared to last Friday, two-year Treasury yields are down ~18 basis points (3.74% vs. 3.92%), 10-year yields are lower by ~14 basis points (4.24% vs. 4.38%) and 30-year yields decreased ~6 basis points (4.82% vs. 4.92%).

Expectations around potential rate cuts from the Fed in 2025 jumped this morning in response to the Nonfarm Payrolls report. Per Bloomberg, expectations for a 25-basis-point cut at the September Federal Open Market Committee (FOMC) increased to 84% vs. 39% yesterday, while the total 2025 expected 25-basis-point cuts now stands at 2.26, up from 1.36 yesterday.

The S&P 500 (SPX) appears to have finally delivered a signal to the markets that a counter-trend consolidation move is underway. Yesterday the index gapped up to fresh all-time highs, thanks to strong earnings report out of MSFT/META, but then sold off throughout the day and closed near the lows of the session, which created a bearish engulfing candle on the charts. It also was the first time that the index closed below the 20-day Simple Moving Average since June 20th. The SPX is following through with additional selling pressure today, but is showing some buy interest, as evidenced by today's hammer on the charts. While today's intraday bid support is noteworthy, the technical have shifted to a more bearish stance over the past 48 hours.

Near-term technical translation: bearish

The Dow Jones ($DJI) is at an interesting technical juncture from my standpoint. First, the index failed to surpass its prior all-time high around 45,000 twice during the month of July (denoted by the red dotted line in the chart below), while the S&P 500 and Nasdaq continued to move higher. Because it failed to overcome this resistance level it gets a bearish intermediate-term assessment (until that resistance level is surpassed). On the other hand, earlier today the $DJI dropped down to its 50-day Simple Moving Average (SMA) and appears to have found support, which would provide a bullish outlook on a near-term basis. Assuming the 50-day SMA holds up as support next week, the technical snapshot is bullish, but if it falls below this moving average then this would suggest a larger drawdown is in the cards.

Technical translation: near-term slightly bullish; intermediate-term bearish

Earlier this week JPMorgan Chase & Co. announced a strategic partnership with crypto exchange operator Coinbase which will provide 80M+ JPMorgan customers easier access to cryptocurrencies. Under the partnership, JPMorgan customers can use their Chase credit cards to fund Coinbase purchases and will be able to redeem Chase Ultimate Rewards points for USDC stablecoins. Although JPM CEO Jamie Dimon has publicly been critical of Bitcoin, his company continues to embrace the blockchain technology that backs the coin. In May, JPM settled its first transaction on a blockchain and last month they launched a deposit token on Coinbase's blockchain for institutional clients.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, stocks slid this week and market breadth followed suit. On a week-over-week basis, the SPX (white line) breadth dropped to 58.00% from 66.00%, the CCMP (blue line) ticked up to 40.69% from 48.06%, and the RTY (red line) eased to 42.33% from 50.49%.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (17 today): Boeing Company (BA - $5.80 to $216.04), Caterpillar Inc. (CAT - $16.40 to $421.62), Eaton Corp. (ETN - $9.59 to $375.13), Ebay Inc. (EBAY - $2.43 to $89.33), Oracle Corp. (ORCL - $10.20 to $243.57), Nvidia Corp. (NVDA - $5.67 to $172.20)

This Week's Notable 52-week Lows (135 today): Baxter International Inc. (BAX - $0.10 to $21.65), Charter Communications Inc. (CHTR - $1.28 to $268.08), Corvel Corp. (CRVL - $1.17 to $87.42), Diageo PLC (DEO - $0.51 to $97.44), Eagle Bancorp Inc. (EGBN - $0.54 to $15.54), Fair Isaac and Company (FICO - $30.56 to $1,406.16)