Morning in New York: Investors Are Once Again Showing Cautious Optimism

A daily review and forecast of events in the U.S. stock market by Mikhail Denislamov, Deputy Director of Capital Markets Research at Freedom Broker.

The key macroeconomic release this Monday will be the Conference Board’s Leading Economic Index for June (consensus: ~0% MoM, May: +0.1% MoM). A weaker result could signal a slowdown in economic growth, though the impact of this data on market movements is likely to be limited. Overall, the macroeconomic calendar for the coming trading days is not packed with significant releases. Fed officials traditionally refrain from making public statements in the week leading up to the meeting scheduled for July 28–29. The market expects rates to remain unchanged, so price movements will be driven primarily by corporate earnings reports and foreign policy news.

The escalation of tensions between the U.S. and Iran remains the primary source of risk. For the eighth consecutive day, U.S. forces have been attacking Iranian targets. The Islamic Republic, in turn, is launching missile and drone strikes against countries in the Persian Gulf. Oil prices are rising again due to concerns about the transport of crude oil through the Strait of Hormuz. Against this backdrop, risks of accelerating inflation and the continuation of the Fed’s hawkish policy are intensifying.

Domino’s Pizza (DPZ) has reported its quarterly results, and Dynex Capital (DX) and AMC Entertainment (AMC) are also set to report before the start of the main trading session. After the market closes, Steel Dynamics (STLD), Crown Holdings (CCK), W.R. Berkley (WRB), Zions Bancorporation (ZION), Wintrust Financial (WTFC), and AGNC Investment (AGNC) will report their earnings.

Futures on major stock indices are showing positive momentum following Iran’s announcement that it will continue talks with the U.S. through intermediaries. We assess the risk balance for the upcoming session as neutral, with average volatility. Geopolitical risks and a decline in the technology sector are offset by stability in futures markets and the absence of significant macroeconomic triggers.

— GameStop (GME) disclosed a 9.8% stake in eBay (EBAY), representing 43.4 million of its shares. The company converted its derivative positions into common stock, reaffirming its intention to continue its battle for the company’s acquisition after its approximately $56 billion takeover bid was rejected. This supports a premium in the marketplace’s valuation in the event of a potential deal. For GameStop, questions remain regarding the financing of the acquisition.

— Meta Platforms (META) may come under pressure, as more than 6,500 complaints from Facebook and Instagram users regarding service disruptions were reported in the U.S. yesterday. Reuters also reported intermittent access issues with these social media platforms in Singapore. The impact of these incidents on Meta’s stock price will be limited if the company confirms that its services have been fully restored.

— News regarding demand for the initial public offering (IPO) of Chinese memory chip manufacturer Changxin Memory Technology (CXMT) will impact the performance of U.S. chipmakers, particularly Micron (MU). The $8.6 billion IPO was oversubscribed by institutional investors by approximately 570 times; however, demand turned out to be significantly weaker than during previous IPOs by companies in this sector in China. This reflects investor caution following a sell-off in semiconductor stocks and the ongoing risk of intensifying competition between the U.S. and China in the DRAM market.

— News of a cyberattack, in which data from approximately 3,300 accounts in the cloud storage systems of 15 subsidiaries was stolen, will have a negative impact on Ecopetrol (EC) stock prices. Colombia’s largest oil company thwarted an attempt to install ransomware and did not experience any disruptions to its operations; however, it has not ruled out the possibility that the incident could have a significant impact on its financial results and reputation.

Trading on July 17 on U.S. stock markets closed near the day’s lows. The S&P 500 fell 1.01%, the Nasdaq 100 dropped 1.49%, the Dow Jones declined 0.77%, and the Russell 2000 lost 0.42%.

The session’s momentum was driven by an acceleration in sell-offs among momentum stocks and AI-related beneficiaries. Capital rotation gave way to a broad risk-off trend. Most of the “Magnificent Seven” closed in the red, with Meta, Alphabet, Nvidia, and Tesla shares losing more than 2%. Telecom stocks (XLC: −1.78%) and consumer cyclical stocks (XLY: −1.62%) were the underperformers. Only the energy sector (XLE: +1.16%) remained in positive territory, supported by a surge in WTI crude oil prices due to a new escalation of the Middle East conflict.

Macroeconomic data was largely positive, but it failed to offset the pressure from technical factors on the high-tech sector. The University of Michigan’s preliminary consumer sentiment index for July rose from 49.5 points in June to 54.4 points, beating the consensus estimate of 51, thanks to lower gasoline prices. An important signal was the decline in inflation expectations over the next year from 4.6% to 4.2%, while five-year expectations remained at 3.3%. June housing starts significantly exceeded forecasts, although building permit data came in weaker than expected. Industrial production rose 0.1% in June, compared with a consensus estimate of 0.2%.

Reports that the U.S. was sending additional refueling aircraft to Israel for new attacks on Iran contributed to the decline in interest in risky assets. A sharp decline in the number of tankers passing through the Strait of Hormuz heightened fears of disruptions to oil supplies. The Semiconductor Industry Index (SOX) officially entered bear market territory, plummeting more than 20% from its June all-time highs amid discussions about the long-term return on capital expenditures for AI infrastructure.

— Travelers Cos. (TRV: +9.2%) reported impressive quarterly results, including growth in net written premiums that exceeded market consensus estimates. The insurer reported an improvement in its combined ratio, a steady decline in losses from natural disasters, and an increase in investment income.

— STAAR Surgical’s (STAA: −8.8%) preliminary second-quarter revenue guidance of just over $90 million fell slightly short of investor expectations. Positive sales momentum in China, the Asia-Pacific region, and the Americas were offset by geopolitical tensions and deteriorating macroeconomic indicators in the Middle East, which put significant pressure on the company’s results in the EMEA region.

— Autoliv (ALV: −3.8%) reported weak profitability figures and a decline in its gross margin. Despite a solid increase in revenue driven by strong demand in Asia, growth in passenger car production in Europe and North America has slowed. The full-year outlook remains conservative due to uncertainty in the business environment.

— SpaceX (SPCX: −5.4%) has postponed its second attempt at a test launch of the upgraded Starship rocket system. According to company CEO Elon Musk, the automatic launch abort was caused by a technical malfunction in some of the engines; a relaunch could take place as early as next week.

This article was AI-translated and verified by a human editor