US Stocks Could Open Sharply Lower As Tesla, Alphabet Earnings Offer No Cheer: Analyst Says This Bodes Well For Small-Caps, 'Only Takes A Small Spark To Ignite A Powerful Move'
Wall Street is gearing up for a negative start on Thursday, as traders mull over earnings from Tesla, Inc. (NASDAQ:TSLA) and Alphabet, Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG), which incidentally haven’t been received well by the Street. While Tesla’s earnings were dismissed as of low quality, investors worried about Alphabet’s massive capex boost as it eyes supremacy in the AI market. The market may also focus on private sector activity readings due shortly after the market opens.
“Mega tech has an unprecedented influence on market moves and overall earnings,” fund manager Louis Navellier said in a note. Traders may choose to remain on the sidelines until they get more clarity on the earnings front and see through two key data due over the next two sessions, with Friday’s inflation data being more critical of the two.
| Futures | Performance (+/-) |
| Nasdaq 100 | -1.05% |
| S&P 500 | -0.71% |
| Dow | -0.42% |
| R2K | -0.38% |
In premarket trading on Wednesday, the SPDR S&P 500 ETF Trust (NYSE:SPY) moved down 0.75% to $549.65, while the Invesco QQQ ETF (NASDAQ:QQQ) fell 1.12% to $475.23, according to Benzinga Pro data.
Cues From Last Session:
U.S. stocks paused on Tuesday as traders opted to remain on the sidelines ahead of some key economic data and earnings reports. The major indices opened on a mixed note but they showed volatility, flitting in and out of the unchanged line, before closing firmly in the red. The Dow Jones Industrial Average underperformed the rest of the two major averages.
A majority of the S&P 500 sectors ended lower, with energy and utility stocks showing the worst declines.
The small-cap space had a different tale to tell as they ignored a weak start and rose steadily to close the session notably higher.
| Index | Performance (+/-) | Value |
| Nasdaq Composite | -0.06% | 17,997.35 |
| S&P 500 Index | -0.16% | 5,555.74 |
| Dow Industrials | -0.14% | 40,358.09 |
| Russell 2000 | +1.66% | 2,220.65 |
Insights From Analysts:
Comerica Chief Investment Officer John Lynch weighed in on the recent small-cap rally, with the strategist seeing the recent rotation into small-cap stocks being driven by a combination of attractive valuations, sector composition, and shifting market dynamics.
He noted that the equity market leadership has experienced a dramatic shift in recent weeks after the first half of the year saw the market dominated by the mega-cap Magnificent 7, which contributed over half of the S&P 500’s 15.3% total return. This trend changed following the June CPI report, which sparked a “rotation in equities, with investors reallocating from this year’s outperformers to laggards, leading to a more balanced performance across the equity market,” he said.
“Given the smaller size and relatively less liquidity of the small-cap market, it only takes a small spark to ignite a powerful move in the space,” Lynch said.
“The non-recessionary easing of 1995 bodes well for small-cap stocks,” he added.
Upcoming Economic Data:
- The Commerce Department is scheduled to release:
- advance trade balance report for June at 8:30 a.m. EDT. The consensus estimate calls for a deficit of $98.8 billion for the month, slightly lower than May’s $99.3 billion.
- advance wholesale inventories report for June, with economists, on average, forecasting a 0.6% month-over-month increase in wholesale inventories compared to the 0.5% growth in May.
- new home sales report for June at 8:30 a.m. EDT. New home sales may have come in at a seasonally adjusted annual rate of 639,000 units for June compared to 619,000 units for May.
- S&P Global will release its flash manufacturing and service sector readings at 9:45 a.m. EDT. The manufacturing purchasing managers’ index is expected to remain nearly unchanged at 51.7 in July compared to the June reading of 51.6. The service sector PMI may have slipped from 55.3 to 54.7.
- The Energy Information Administration will release its weekly Petroleum Status report at 10:30 a.m. EDT.
- The Treasury will auction five-year notes at 1 p.m. EDT.
- Fed Governor Michelle Bowman is scheduled to make a public appearance at 4:05 p.m. EDT.
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Stocks In Focus:
- Tesla fell nearly 8% in premarket trading following its earnings released Tuesday after the close. The other stocks moving on earnings are Alphabet (down over 3%), Seagate Technology Holdings plc (NASDAQ:STX) (up about 4.5%), Texas Instruments, Inc. (NASDAQ:TXN) (up nearly 2.80%) and Visa Inc. (NYSE:V) (down over 3%).
- AT&T Inc. (NYSE:T), Check Point Software Technologies Ltd. (NASDAQ:CHKP), Boston Scientific Corporation (NYSE:BSX), CME Group Inc. (NASDAQ:CME), General Dynamics Corporation (NYSE:GD), Old Dominion Freight Line, Inc. (NASDAQ:ODFL), GE Vernova Inc. (NYSE:GEV) and Thermo Fisher Scientific Inc. (NYSE:TMO) are among the notable companies reporting ahead of the market open.
- Those reporting after the close include Chipotle Mexican Grill, Inc. (NYSE:CMG), Edwards Lifesciences Corporation (NYSE:EW), Ford Motor Co. (NYSE:F), International Business Machines Corporation (NYSE:IBM), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), Las Vegas Sands Corp. (NYSE:LVS), Meritage Homes Corporation (NYSE:MTH), Whirlpool Corporation (NYSE:WHR), ServiceNow, Inc. (NYSE:NOW) ORLY) and O’Reilly Automotive, Inc. (NASDAQ:ORLY).
Commodities, Bonds And Global Equity Markets:
Crude oil futures are seen rebounding after a four-session slump and gold futures rose modestly. Bitcoin (CRYPTO: BTC) slipped and traded around the $66.5K mark. The yield on the 10-year benchmark Treasury note was up marginally at 4.239%.
The major Asian markets closed mostly lower, with the disappointing mega-cap U.S. earnings dragging stocks lower in the region. On the other hand, the Taiwanese and New Zealand bucked the downtrend. European stocks fell after private sector activity data from the region surprised to the downside.
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