The stock market rally came to a halt this week as the markets continued to face several challenges in the form of disappointing Big Tech earnings, a major sell-off in chip stocks, and troubles in the auto sector. The S&P 500 was down almost 2% for the week by mid-Friday while the tech-heavy Nasdaq was down a more pronounced 3.3%. Both the S&P 500 and the Nasdaq Composite posted their worst performance since 2022 last Wednesday, losing 2.3% and 3.64%, respectively. The Dow Jones performed surprisingly well during the week - up 25 basis points for the week as of mid-Friday - aided by the initial GDP report which showed the economy grew 2.8% in the second quarter, well ahead of analyst estimates.

Zooming In

As we head to the next week, investors remain optimistic about a rate cut as data released on Friday morning showed the personal consumption expenditures price index increased 2.5% YoY in June, in line with the expectations of the Commerce Department. This reading supports a rate cut as it shows that the economy is not overheated anymore.

This week, there were some major market movements that rocked investors.

• Google parent Alphabet Inc. (NASDAQ: GOOG) lost 5% of its market value on Wednesday as YouTube revenue for Q2 came below expectations.
• Ford Motor Company (NYSE: F) came under massive selling pressure on Thursday and lost 12% of its value after the company missed earnings estimates due to a substantial increase in warranty claims.
• Tesla Inc. (NASDAQ: TSLA) lost 12% on Wednesday after the company reported a 7% YoY decline in revenue for Q2, confirming investor fears of a recession in the EV sector.

Zooming Out

The stock market performance next week will be driven in part by the earnings reports of a few big names such as Microsoft Corporation (MSFT), Starbucks Corporation (SBUX), Meta Platforms, Inc. (META), Apple, Inc. (AAPL), Amazon.com, Inc. (AMZN), and Berkshire Hathaway, Inc. (BRK.A). If Big Tech companies such as Apple and Meta report better-than-expected earnings, there is every possibility of the tech stock downturn reversing course. However, a lot will depend on the outcome of the next Fed meeting scheduled for July 30 and 31 as well. Although the market is expecting the Fed to hold rates steady, there is a possibility of a positive surprise by the Fed as some renowned economists are calling for the Fed to take swift action to avoid a recession.

Both Dilantha DeSilva and Stocks.News have positions in Meta, Microsoft, and Ford. Stocks.News also has positions in Tesla, Starbucks, and Amazon.