Fly On Wall Street

Here are 4 things we’re watching closely in the stock market this week

News Team

Stocks had a rough week, topped off with a pummeling Friday after the July jobs data came in weaker than expected.

The Nasdaq led the way down, losing 3.35% on the week, followed by the Dow Jones Industrial’s decline of 2.1%, and the S&P 500′s 2.06% drop.

It was a dramatic shift in sentiment that began Thursday. Until then, bad economic news was good news for the stock market, because it meant the Federal Reserve would start cutting interest rates sooner. Now it appears bad economic news is, in fact, bad news for stocks. On Thursday, a drop in U.S. manufacturing activity for July and a jump in initial jobless claims dragged down the market. Then came Friday’s payroll report, which also showed an uptick in unemployment and lower-than-expected wage inflation.

The fear is that the central bank, which has been criticized for waiting too long to raise rates, is now moving too slow to lower them. Before Friday’s employment data, three quarter-percentage point cuts were expected this year, starting in September. Now the market odds that September might see a half-percentage point rate cut are rising.

Jim Cramer said Friday the Fed should have cut at this week’s meeting. However, he was calling for calm all day long, saying the flight from stocks, especially mega-cap tech companies, was overdone. Indeed, we used the market drop as an opportunity to pick up shares of high-quality companies. On Friday morning, we picked up more Broadcom, and would’ve added Advanced Micro Devices were we not restricted. Later, we purchased Palo Alto and revealed six stocks we’re eyeing in the coming week.

Looking under the hood of the S&P 500, utilities led to the upside, followed by real estate and communication services sectors. Consumer discretionary led to the downside, followed by technology and energy.

Next week is light on economic data, so expect earnings reports and CEO commentaries to drive the market action.

State of the service economy: The release of the July ISM Services PMI — which is based on surveys sent to purchasing and supply companies of more than 400 services firms — kicks off the trading week. As of Friday, economists are looking to a reading of 51.5, according to FactSet. That would indicate a slight expansion after contracting in June. In addition to the headline number, it’s always helpful to take a look at the “what respondents are saying” section of the report, which is filled with qualitative information from different industry sources.

Earnings: About 75% of the S&P 500 has now reported earnings. Of those, 78% exceeded earnings expectations while 59% reported better-than-expected revenue results, according to FactSet. In our portfolio, more than 60% of the companies have now delivered results, including 14 firms in the past week alone. Three more come out in the coming week.

Monday, August 5

Tuesday, August 6

Wednesday, August 7

Thursday, August 8

Friday, August 9

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