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Sentiment continues to be jittery, with the major index futures priming for a lower opening on Thursday as traders look ahead to the first read of second-quarter GDP data and more earnings. The tech space could once again drag the broader market after a few disappointing earnings reports from the likes of Franco-Italian chipmaker STMicroelectronics N.V. (NYSE:STM), which predominantly supplies to the automotive end market, and semiconductor test-equipment company Teradyne, Inc. (NASDAQ:TER).
Traders may also stay glued to second-quarter GDP data to confirm the slowdown suggested by some recent data does not point to a hard landing. That said, bond yields are dipping as the market, factoring in not-so-positive economic data, and commodities are moving to the downside.
| Futures | Performance (+/-) |
| Nasdaq 100 | -0.50% |
| S&P 500 | -0.29% |
| Dow | -0.10% |
| R2K | +0.07% |
In premarket trading on Thursday, the SPDR S&P 500 ETF Trust (NYSE:SPY) moved down 0.24% to $539.94, while the Invesco QQQ ETF (NASDAQ:QQQ) fell 0.43% to $461.40, according to Benzinga Pro data.
Cues From Last Session:
Mega-cap earnings proved to be the undoing of the market on Wednesday, triggering an across-the-board sell-off. The major indices opened lower, with the sell-off intensifying in early trading after S&P Global’s manufacturing purchasing managers’ index unexpectedly fell into contraction territory and new home sales for June unexpectedly declined.
The key averages declined steadily through the session before closing the day notably lower. The S&P 500 Index and the Nasdaq pulled back to their lowest closes since June 12 and June 11, respectively, while the 30-stock Dow Jones Industrial Average fell to a nearly two-week low.
On a percentage basis, the S&P 500 and the Nasdaq Composite indices posted their worst performances since Dec. 15, 2022 and Oct. 7, 2000, respectively, according to MarketWatch.
Defensive utility, healthcare and consumer staple stocks escaped the brunt of the selling pressure, which was manifested more acutely in IT, communication services and consumer discretionary stocks. Energy stocks also posted modest gains.
Small-caps also joined their large-cap counterparts in the sell-off, with the Russell 2,000 slipping over 2%.
| Index | Performance (+/-) | Value |
| Nasdaq Composite | -3.64% | 17,342.41 |
| S&P 500 Index | -2.31% | 5,427.13 |
| Dow Industrials | -1.25% | 39,853.87 |
| Russell 2000 | -2.14% | 2,195.37 |
Insights From Analysts:
Morgan Stanley Chief U.S. Equity Strategist Mike Wilson in a podcast on Monday said the perceived underperformers under a Donald Trump presidency are alternative energy stocks and stocks of companies likely to be affected the most by increased tariffs. He noted that it is a widely-held view that Trump’s win in conjunction with a Republican sweep could be particularly beneficial for banks, small-caps, energy infrastructure and even industrials.
These cyclical areas that are perceived to outperform under a Trump Presidency did work in 2016 and through part of 2017, but they did even better during Biden’s first year, Wilson said. “Our rationale on this front is that the cycle plays a larger role in how stocks trade broadly and at the sector level than who is in the White House,” he said.
These cyclicals show “strong, but often not quite as strong performance in mid-cycle periods like 2016-17. They tend to show less strong returns later in the cycle like the current period,” he said.
Wilson also delved into the lower-quality, small-cap rally, attributing it to the combination of softer consumer price inflation data and hopes for an earlier Fed cut combined with dealer demand and short covering from investors on the back of Trump's improving odds.
“For those looking to the 2016 playbook, we would point out that relative earnings revisions for small-cap cyclicals are much weaker today than they were during that period,” he said.
“Based on the evidence to date, we would resist the urge to chase this cohort and lean back into large-cap quality and defensives.”
Charlie Bilello, chief market strategist at Creative Planning Investor, shared a graphic that showed the spread between the small and large caps, suggesting the “largest 10-day Small Cap outperformance ever.”
Upcoming Economic Data:
See Also: How To Trade Futures
Stocks In Focus:
Commodities, Bonds And Global Equity Markets:
Crude oil futures fell sharply, dropping to the lowest since June 10 intraday, and gold futures also fell, retreating below the $2,400 mark. Bitcoin (CRYPTO: BTC) fell toward the $64K level. The yield on the 10-year benchmark Treasury note was down 6.5 basis points to 4.22%.
The major global equity markets were swathed in a sea of red, with the Asian markets, led lower by the Japanese markets, as traders in the regional markets fretted about the losses on Wall Street and expressed apprehensions ahead of key U.S. data. European stocks were deep in negative territory, stung by the negative global market sentiment and some disappointing earnings.
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