Tech Outage Sparks Market Sell-Off: What’s Next for Stocks?
Stocks experienced a significant pullback from record highs last week, with pressure mounting across the technology sector following a global tech outage that sent shockwaves throughout the market on Friday. The S&P 500 (^GSPC) closed the week down nearly 2%, while the Nasdaq Composite (^IXIC) dropped over 3.5%, marking their worst weekly performance since April. In contrast, the Dow Jones Industrial Average (^DJI) managed to rise about 0.7%.
Looking ahead, the upcoming week will be crucial as critical readings on economic growth and inflation, as well as the start of Big Tech earnings, will determine the market’s direction. On the economic front, the advanced reading of second-quarter economic growth is scheduled for Thursday, followed by the June reading of the Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, on Friday.
In terms of corporate news, a number of S&P 500 companies are set to report quarterly results, with Alphabet (GOOGL, GOOG), Tesla (TSLA), and Chipotle (CMG) among the notable names on the earnings calendar.
Last week, new data showing a slowdown in inflation prompted markets to price in a 100% chance of a rate cut by the Federal Reserve at its September meeting. This week, the focus will be on the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, which is expected to show a slight decrease in core PCE from the previous month.
Additionally, investors will be closely watching the first reading of Gross Domestic Product (GDP) for the second quarter, with economists anticipating a growth rate of 1.9%, up from the previous quarter. The data is expected to show healthy activity and a positive direction for inflation.
A notable shift has been observed within the stock market, with Real Estate and Financials leading sector action in the past 10 days, while Technology and Communication Services, which were previously top performers, have lagged. This rotation has extended to small-cap stocks, with the Russell 2000 outperforming the S&P 500 in recent weeks.
The upcoming earnings reports from Big Tech companies like Tesla and Alphabet will be closely watched, as they could impact the broader market’s earnings growth trajectory. These companies are expected to post strong earnings growth compared to the rest of the S&P 500, potentially driving overall market performance.
In conclusion, the week ahead is poised to be a critical one for investors, with economic data, inflation readings, and Big Tech earnings shaping market sentiment and direction. Stay tuned for updates on how these factors unfold and impact the financial landscape.