1. Moving the market

Last week’s selloff spread globally and accelerated this morning as traders grappled with fears of a U.S. recession. The downturn began in Japan, where the Nikkei plummeted over 12%, marking its worst day since the 1987 Black Monday crash. Contributing to the turmoil was Japan’s recent decision to hike interest rates, which disrupted the highly leveraged yen carry trade and triggered a cascade of selling and forced liquidations worldwide.

In the U.S., the Dow Jones Industrial Average dropped over 1,000 points, or 2.6%, while the Nasdaq fared even worse, losing 3.4%. The release of July’s jobs report on Friday exacerbated the situation, convincing traders that the Federal Reserve is behind the curve in cutting rates to address the current economic slowdown.

Mega-cap tech stocks were hit hardest, with Nvidia falling 6%, Apple 5%, and Tesla 4%. Broadcom and Super Micro also declined by 1% and 2.5%, respectively. Notably, only nine stocks in the S&P 500 ended the session higher.

At their lowest points, Small Caps and the Nasdaq were down 6% before dip buyers stepped in to limit the damage. The most shorted stocks were heavily impacted but managed to recover some ground late in the session.

The MAG7 stocks suffered significant losses, now down an astonishing $3 trillion from their record highs. The AI sector also faced a rapid decline, falling below its 200-day moving average. Bond yields were volatile, initially collapsing before rebounding to nearly unchanged levels.

The dollar weakened, crude oil retreated but later recovered, and gold experienced wild swings before bouncing off support. Bitcoin also took a dive as traders liquidate assets to meet margin calls, but it found support at the $50,000 level.

In my advisory practice, we sold a major tech ETF and closed our position in the international market after the International TTI dropped below its long-term trend line.

The future direction of the market now hinges on the Federal Reserve’s response.

Will they panic and implement an emergency rate cut to prevent equities from plunging further?

1. Moving the market

The markets faced a significant downturn today, as weak economic data erased an early rally. Major indexes dipped into the red, with the Nasdaq dropping 2.3%, effectively wiping out most of yesterday’s gains.

Initial jobless claims surged to 249,000 for the week ending July 27, surpassing the estimated 235,000. Additionally, the ISM manufacturing index, which reflects economic activity, fell to 46.8, reinforcing my view that the economy is slowing down. In summary, today’s bad news was genuinely bad for the markets, unlike previous instances where bad news sometimes had a positive effect.

Although the Federal Reserve left interest rates unchanged yesterday, this type of data might prompt the central bank to lower rates at their September meeting. However, if inflation remains uncontained, despite traders’ beliefs, the Fed could face a challenging situation, potentially leading to stagflation.

The S&P 500 experienced a sharp decline, losing its 50-day moving average and marking its worst start to August since 2002. Yesterday’s beneficial short squeeze disappeared, with the most shorted stocks plummeting 8% from yesterday’s highs, as noted by ZH.

The MAG7 stocks saw a dramatic reversal, with an early morning 2.5% gain turning into a nearly 5% drop, erasing $430 billion in market cap. Semiconductors followed this trend, hitting their May lows.

Unsurprisingly, bond yields fell, Bitcoin tested its $63,000 level, crude oil prices dropped after initially rising due to Middle East tensions, while gold remained steady.

With volatility on the rise, tomorrow’s jobs report and Amazon’s earnings could further confirm an economic downturn.

1. Moving the market

The tech sector saw a significant boost, led by Advanced Micro Devices (AMD), which lifted the Nasdaq to an impressive gain after surpassing second-quarter expectations. Nvidia followed suit, achieving its largest single-day gain ever at 12%. Meanwhile, Microsoft experienced a decline due to underwhelming cloud business performance but managed to recover by the close of trading.

Despite reporting a larger-than-expected loss and disappointing revenue, Boeing’s shares rose by 2% following the announcement of a new CEO.

The Nasdaq led the charge, with all major indexes climbing higher in anticipation of more earnings reports and the Federal Reserve’s decision on interest rates. The Fed opted to keep rates unchanged, but traders were keenly focused on any hints of a potential rate cut in September.

Fed Chair Powell maintained cautious optimism, suggesting that if inflation data continues to improve, a rate reduction could be considered at the next meeting. The Fed’s post-meeting statement was more optimistic, noting progress towards the 2% inflation target. This positive outlook fueled further gains in the tech sector, with companies like Apple, Meta, and Amazon joining the rally.

In July, gold emerged as the top performer, followed closely by bonds, while the dollar and crude oil ended the month in the red. Small Caps surged ahead by 12%, contrasting with the Nasdaq’s 1.5% decline, highlighting a significant divergence.

The most shorted stocks saw substantial gains, sustaining the rally throughout the session. Bond yields dropped, and gold reached its highest monthly closing level ever. Crude oil recovered some losses amid rising tensions in the Middle East, and Bitcoin, although down from its $70k high, still posted gains.

Thanks to the day’s rebound, the S&P 500 managed a slight gain for July. As we move into August, will the index be able to maintain this upward trajectory?