Dow futures surged by more than 100 points as investors eagerly awaited the release of the Federal Reserve’s preferred inflation gauge. This comes amid a volatile week on Wall Street, with significant movements in various sectors and stocks reacting to earnings reports and economic data.

Key Takeaways

• Dow futures rose by 0.4%, S&P 500 futures by 0.4%, and Nasdaq 100 futures by 0.5%.
• Investors are closely watching the Federal Reserve’s preferred inflation gauge, the PCE price index, expected to show a 0.1% rise for June.
• The stock market has experienced significant volatility, with tech stocks facing a pullback and small caps showing strength.

Market Overview

Stock futures rose on Friday as the major averages headed for weekly losses. Futures tied to the Dow Jones Industrial Average advanced 187 points, or 0.5%. S&P 500 futures and Nasdaq-100 futures climbed just over 0.7% and 1%, respectively. At 8:30 a.m. ET, traders will watch for June’s personal consumption expenditures (PCE) price index, an inflation reading preferred by central bank policymakers. On a monthly basis, headline PCE is expected to have grown by 0.1% and by 2.5% from 12 months earlier.

Sector Performance

The communication services sector is on track for its worst week since October 2023, with weekly losses totaling 4.63%. Alphabet shares are down 5.8% week to date, while Meta Platforms has dropped 4.9%. The information technology sector is also struggling, with a 3.5% decline for the week. Health care and utilities are the only two sectors in the S&P 500 that are positive for the week, up 0.77% and 0.48%, respectively.

Small Caps Rally

The current strength of the small cap sector is a significant rotation not seen in decades. Small caps have only managed to outperform large caps twice over the last 30 years: during the Covid-19 pandemic and the dot-com bubble in 1999 to 2000. The Russell 2000 is up 1.8% week to date and roughly 8.6% in July.

Earnings Reports

Several companies made headlines with their earnings reports:

• Dexcom: Shares plunged more than 35% after the company slashed its full-year guidance.
• Boston Beer Company: The maker of Twisted Tea and Samuel Adams slid 5% after second-quarter results missed estimates.
• Coursera: Shares surged 16% after second-quarter revenue surpassed analysts’ estimates.

Market Sentiment

Steve Eisman of "The Big Short" fame believes the recent tech-led market pullback is driven by emotions rather than a fundamental deterioration. He noted that consumer spending seems to have slowed slightly, and delinquencies are up a touch.

Conclusion

As investors prepare for the release of the Federal Reserve’s preferred inflation gauge, the market remains volatile with significant movements in various sectors. While tech stocks face a pullback, small caps show strength, and earnings reports continue to influence stock prices.

Sources

• Zoom In Icon, CNBC.
• Dow Jones Futures Rise After Nvidia Faces AI Fatigue; Fed’s Key Inflation Data Due | Investor’s Business Daily, Investor’s Business Daily.