This week in the stock markets was marked by significant volatility, with dramatic swings that ultimately led to a strong finish. The week began with panic selling, particularly on Monday, which caused sharp declines in major indices like the S&P 500. However, as the week progressed, markets rebounded strongly, driven by improved sentiment and positive corporate earnings, notably from companies like Expedia Group.
By Friday, the S&P 500, Nasdaq, and Dow Jones all saw gains, despite earlier losses. Investor sentiment fluctuated throughout the week, influenced by weak economic data and uncertainty surrounding the Federal Reserve's future interest rate decisions. Global factors, such as Japan’s monetary policy shifts, also contributed to the market's instability, particularly affecting the yen carry trade.
The volatility index (VIX) spiked early in the week but settled around 20 by Friday, indicating a return to relative stability. Meanwhile, 10-year Treasury yields fell to 3.94%, reflecting tempered expectations for aggressive Fed rate cuts. Globally, markets responded similarly, with Japan’s Nikkei 225 experiencing its worst performance since 1987, while European markets had mixed outcomes.
Commodities like crude oil and gold saw moderate increases, and cryptocurrencies also rose, with Bitcoin climbing to over $60,000. Despite the week’s turbulence, the overall declines in major indices were minor, with year-to-date performances remaining robust, signaling a resilient market amidst the volatility.
Looking Forward To Next Week
Next week, the markets will focus on crucial economic data and earnings reports. The Consumer Price Index (CPI) and Producer Price Index (PPI), releasing on Wednesday and Tuesday, respectively, will be closely watched for signs of inflation trends. These could influence expectations for a potential Federal Reserve rate cut in mid-September. Earnings from major retailers like Home Depot and Walmart will also be key, offering insights into consumer sentiment and economic resilience. Additionally, geopolitical issues and the U.S. presidential election are expected to add to market volatility, keeping investors cautious.
Bitcoin Recovers Most Losses, but Faces Critical Resistance Level
Bitcoin rallied 11% on Thursday, recovering much of its earlier losses and climbing back above $60,000, reducing its weekly loss to 3%. Despite this bounce, it remains one of Bitcoin's most volatile weeks of the year.
Chart analyst Ron Ginsberg noted that Bitcoin became "nicely oversold" after dropping below $53,000, sparking the relief rally. He emphasized that Bitcoin's next moves are crucial: breaking resistance could push it towards $70,000, but failing to hold $60,000 could lead to a drop, possibly to $40,000.
Bitcoin has traded between $55,000 and $70,000 this year after pulling back from its all-time high above $73,000. Will Tamplin from Fairlead Strategies stressed that Bitcoin needs to stay above $56,500 on a weekly close to maintain momentum, warning that a slowdown could result in a deeper pullback to around $51,500.
Buffett’s Apple Sale Fails to Shake Wall Street's Confidence
Warren Buffett's decision to sell nearly half of his Apple shares hasn't dented Wall Street's confidence in the company. Berkshire Hathaway's earnings report showed its Apple holdings were worth $84.2 billion at the end of the second quarter, reflecting significant profit-taking. Despite a 4.8% drop in Apple shares on Monday and another 2% on Tuesday, analysts remain optimistic.
Experts believe Buffett's sale was driven by portfolio management and concerns about Apple's high valuation, not issues with the company itself. Wamsi Mohan from Bank of America still recommends buying Apple, suggesting the sale was for diversification. Even after the sell-off, Apple shares rose 23% in the second quarter, fueled by interest in the company's AI plans.
Toni Sacconaghi from Bernstein thinks Buffett trimmed his Apple holdings because the stock became expensive, trading at over 30 times earnings. Despite the sale, Apple remains Berkshire's largest investment, and some analysts, like those at Melius Research, advise buying if the stock drops further.
Eli Lilly Shares Surge on Strong Q2 Results, Driven by Weight Loss Drugs
Eli Lilly's shares surged over 7% after strong second-quarter results, driven by better supply and pricing of its weight loss drugs, Mounjaro and Zepbound, which generated $4.33 billion in revenue, far exceeding expectations. This success led Lilly to raise its 2024 revenue forecast by $3 billion and increase earnings estimates to $16.10-$16.60 per share.
Despite a recent 16% stock drop due to broader market concerns, Lilly's shares are still up over 46% this year. Analysts emphasize Lilly's leadership in the GLP-1 market, with its drugs outperforming Novo Nordisk's in clinical trials.
Looking ahead, new health data for tirzepatide and phase 3 results for the oral GLP-1 drug orforglipron could further boost Lilly's stock. Analysts, like JPMorgan's Chris Schott, predict significant growth, with incretin drug sales potentially reaching $68 billion by 2030. Schott's $1,000 price target suggests a nearly 30% increase from current levels.
Fed Faces Pressure Amid Market Sell-Off, but Rate Cuts Could Backfire
Monday's global stock market sell-off sparked calls for Federal Reserve intervention, but market risk expert Lawrence McDonald warns that a rate cut could create more problems by weakening the dollar and strengthening the yen. This could exacerbate issues with the "carry trade," where investors borrow yen to invest in higher-yielding assets, adding to market volatility. Instead, McDonald suggests the Fed should use its balance sheet rather than cutting rates.
Earlier expectations for a significant Fed rate cut have diminished as confidence in the economy's resilience grows. Steven Wieting from Citi Wealth sees a slowdown but no imminent recession, reducing the market's expectation for a September rate cut from 85% to 54%. Wharton professor Jeremy Siegel, initially in favor of aggressive Fed action, now believes an emergency rate cut may not be necessary. The Fed has maintained its benchmark rate between 5.25% and 5.50% for over a year, with future cuts remaining uncertain.
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