August 7th Market Overview

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Happy Wednesday everyone.

Pretty nasty price action into yesterdays close, we had a promising gap up but it has since sold off into today’s close. Quite annoying price action - very hard to read as volume inflow and outflow is all over the place. The QQQ is up 8.81% YTD but down (-7.13%) the past 5 days. While macro events don’t signal anything serious, price action and volume flow signal something concerning to me.

Lets dig in…

Executive Summary

1. Market Reversal: Major indices reversed early gains to close in negative territory. The Dow fell 248 points (-0.6%), the S&P 500 declined 0.6%, and the Nasdaq Composite dropped 0.8%.

2. Volatility Persisting: The VIX bounced from an intraday low of 22 to 28.3, indicating sustained but reduced market anxiety compared to Monday’s peak above 65.

3. High Earnings Volatility: According to Goldman Sachs, this earnings season is experiencing the highest volatility since Q2 2009, with stocks moving an average of +/-4.9% on earnings day.

4. Divergent Investor Reactions: JP Morgan data shows that institutions bought $14 billion (2.9 standard deviations above 12 month average) while retail investors sold $1 billion (2.5 standard deviations below 12 month average).

Market Overview

Witnessing a significant intraday reversal with major indices turning negative by midday. The Dow is down 0.6%, the S&P 500 has declined 0.6%, and the Nasdaq has dropped 0.8%. This pullback comes after Tues day’s attempt to recoup losses from Monday’s dramatic sell-off, which was the worst session for the Dow and S&P 500 since 2022.

Key Market Drivers

1. Technology Sector Weakness: A rollover in Nvidia and other big tech stocks led major averages lower.

2. Rising Bond Yields: The 10-year Treasury yield climbed 5 basis points to 3.94%, returning to levels seen before Friday’s weak jobs report.

3. Recession Concerns: Ongoing worries fueled by recession fears and the unwinding of the yen carry trade.

4. Earnings Volatility: This season sees unusually high stock price movements, reflecting increased investor sensitivity to earnings reports.

5. Divergent Investor Behavior: Institutions buying dips while retail investors sell, creating interesting market dynamics.

Stock Spotlight

1. Nvidia (NVDA): Fell 4%, driving tech sector decline; symbolizing broader intraday market reversal.

2. Super Micro Computer (SMCI): Plummeted over 20% after missing Q4 earnings expectations; worst day since April.

3. Fortinet (FTNT): Surged 26%, top gainer in the S&P 500 on strong Q2 earnings and upbeat guidance.

4. Shopify (SHOP): Rose 22% after beating Q2 expectations and providing positive Q3 outlook.

5. Lyft (LYFT): Dropped 12% on weaker-than-expected Q3 guidance.

Other Magnificent 7 Updates

• Tesla (TSLA): Down 3.4%, contributing significantly to the tech sector’s decline.

• Meta Platforms (META): Shed 0.2%, showing relative resilience compared to peers.

Other Notable Company News

• Disney (DIS): Reported an earnings beat but saw weakness in the US theme parks business. Shares were down about 1% premarket.

• Airbnb (ABNB): Shares were down nearly 14% premarket on weak Q3 revenue guidance.

• CVS Health (CVS): Cut full-year profit outlook due to higher medical costs, but shares slipped only 0.3% after beating Q2 expectations.

Sector Watch

Bond Market

The benchmark 10-year Treasury yield continued its climb, rising 5 basis points to 3.94%. This marks a return to levels seen before Friday’s weak jobs report, which had initially stoked fears of an economic downturn. Elevated yields reflect reassessment of economic conditions and easing expectations of Federal Reserve rate cuts.

Policy Watch

• ECB’s Olli Rehn: Stated that recent market swings are an overreaction, affirming the US economy’s relative strength. The ECB continues to monitor the economic situation carefully. This suggests that central bankers maintain a cautious but not alarmist stance amid recent volatility.

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- JB

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