(Monday market open) It’s “tech week” on Wall Street. No, wait, it’s “pharma week.” Or is it “employment week?” How about all three? Today’s calendar is relatively light, but investors await word from Apple AAPL, Amazon AMZN, and two of the biggest pharmaceutical companies later this week, followed by Friday’s not-to-be-missed July Nonfarm Payrolls report.

Last week featured roughly one-third of all S&P 500 companies reporting earnings, and the coming days are packed again. The biggest are Tuesday, when Merck MRK and Pfizer PFE roll out quarterly results in the morning followed by Advanced Micro Devices AMD in the afternoon, and Thursday, when Apple and Amazon step to the plate after the closing bell. All told, another one-third of S&P 500 companies will unveil quarterly results this week.

Beyond that, Friday’s jobs report looms above all other data, and consensus is for jobs growth of 200,000, according to Trading Economics. The June results provided long-awaited evidence of slowing employment growth, and the question is whether that was isolated or the start of cooling labor conditions that the Federal Reserve might welcome.

Speaking of the Fed, keep an eye on Treasuries. Yields spiked late last week back above 4% briefly for the benchmark U.S. 10-year Treasury note, partially a function of the Bank of Japan (BoJ) indicating more flexibility toward allowing rates there to rise from a range close to zero. The move above 4% seemed to spook investors on Thursday, though there was a mild pullback in U.S. yields on Friday.

Last week featured gains for all the major indexes. The S&P 500® Index (SPX) rose 0.9%, while the Nasdaq Composite (COMP) gained 1.5%. The communication services sector led with nearly 7% gains, bolstered by impressive earnings from Meta Platforms META and Alphabet GOOGL. Cyclical sectors, including materials and energy, also rallied, while defensive sectors like utilities, real estate, and health care lagged. Perhaps that’s evidence that investors tilt toward growth following better-than-expected economic data and signs of easing inflation.

It’s the final day of July, and the SPX is on pace for 3% gains this month. That would make July the fifth consecutive month of gains for the broad index.

Morning rush

• The 10-year Treasury note yield (TNX) slipped one basis point to 3.95%.
• The U.S. Dollar Index ($DXY) is steady at 101.7.
• Cboe Volatility Index® (VIX) futures rose slightly to 13.79.
• WTI Crude Oil (/CL) rose 1% to $81.38 per barrel.

Crude is up 15% this month, raising possible inflation worries.

Eye on the Fed

Futures trading indicates a 19% probability that the FOMC will raise rates at its September meeting, according to the CME FedWatch Tool. The probability for November is 28%.

Stocks in Spotlight

Earnings stable: We’re about halfway through Q2 earnings season, and 80% of companies reporting to date delivered better-than-expected earnings per share (EPS), according to FactSet. About 64% reported a positive revenue surprise. Analysts still expect a 7.3% decline in Q2 year-over-year earnings, but that’s better than the –9% they expected a week ago, per FactSet. To date, average EPS is up 3% from the same quarter a year ago.

Results last week were mixed: Coca-Cola (KO), Alphabet and Meta rallied as investors responded to quarterly numbers, but Microsoft (MSFT), ExxonMobil (XOM) and Chevron (CVX) shares lost ground after those companies reported.

House call: Pfizer and Merck will report on Tuesday. The health care sector has been choppy lately—it’s one of only three SPX sectors that is lower for the year. This partially reflects its “defensive” profile, which means it often lags other sectors during growth-propelled market rallies. Pfizer and Merck haven’t escaped recent sector sluggishness.

Pfizer battles tough year-over-year comparisons from declining COVID-19 vaccine demand and spent recently on acquisitions to refill its drug-development pipeline, Barron’s reported. Analysts expect Pfizer’s Q2 earnings and revenue to drop from a year ago, and the company faces an additional challenge after a tornado tore through a Pfizer hospital supply plant earlier this month.

Merck also has tough comparisons after a major Q1 sales decline for its COVID-19 antiviral. Last time out, however, Merck raised full-year earnings guidance. As with Pfizer, analysts expect sharp declines in Merck’s year-over-year earnings and revenue in Tuesday’s quarterly report.

We’ll preview Advanced Micro Devices tomorrow morning before its Tuesday afternoon earnings report.

What to Watch

Though Friday’s jobs report is head and shoulders above all other data this week, there are some nearer-term numbers worth watching.

Manufacturing struggles: Today’s July Chicago Purchasing Managers’ Index (PMI) report is due out soon after the open, and it’s really been dragging lately. The June reading of 41.5 for the index tracking Chicago-area manufacturing sector health rose mildly from May but missed analysts’ expectations of 44.0. Consensus for July is also 44.0, according to Trading Economics. Anything below 50 indicates contraction.

The same goes for Tuesday’s July ISM Manufacturing Index. It’s been in contraction, and analysts expect it to remain that way with a consensus of 46.8, up from 46 in June. The U.S. manufacturing economy has struggled following a pandemic-related surge in goods purchases, which may have pulled consumer demand forward to some extent.

Consumer demand is something the Chinese government apparently wants to stimulate, and it recently took some measures in that regard. It’s almost certainly too soon to see an impact, but this morning investors got a look at official NBS Manufacturing PMI. It rose to 49.3 in July from 49 in June but remained in contraction for the fourth month in a row. Stay tuned tomorrow morning, China time, for the Caixin Manufacturing PMI, which clawed into expansion territory last time out.

Tomorrow morning also brings June Job Openings and Labor Turnover Survey (JOLTS). Fed Chairman Jerome Powell referred to this report at his post-FOMC meeting press conference last week when he said the workers-to-jobs gap has narrowed but labor demand still “substantially exceeds” the supply of available workers. That’s often a recipe for higher wages that can stir inflation.

Not much change is expected in June from May’s 9.824 million, with consensus at 9.63 million. That’s historically high but down from above 10 million earlier this year.

Talking technicals: The SPX ran into resistance on a test of 4,600 last week, and that could remain a key level to watch.

AI update: Check the latest episode of the Schwab WashingtonWise podcast, in which Randy Frederick, managing director for trading and derivatives at the Schwab Center for Financial Research, joins host Mike Townsend to discuss the disruptive nature of artificial intelligence (AI), where the technology is headed, and what investors need to look for in companies touting their AI credentials.

Thinking cap

Ideas to mull as you trade or invest

We don’t need no education: August begins tomorrow, meaning back-to-school time for many youngsters despite their protests. This is an important period for big retailers, though slightly less than in the past due to Amazon’s July “Prime Day” promotion. Even so, August is when many stores hope to rake in revenue as parents stock up on clothing, books, laptop computers, and other technology for their kids. This year, there’s debate over how strong the season might be. Deloitte sees back-to-school spending falling for the first time in nine years, Reuters recently reported. Consumers are expected to spend $31.2 billion, down from $34.2 billion last year, Deloitte said, with spending on apparel and technology seen falling 14% and 13%, respectively. But the National Retail Federation (NRF) predicts customers will spend 12.5% more this year on back-to-school items, according to Reuters, driven partially by inflation’s impact on electronics prices.

More Like “Fair”: So far, four of the Magnificent Seven have reported, leaving Apple, Amazon, and Nvidia (NVDA). All faced high expectations after this year’s massive rally. Results and guidance are mixed for the first four, as strong ad revenue for Meta Platforms and Alphabet contrasting with soft cloud growth and a disappointing cloud outlook from Microsoft and Alphabet. Meta’s virtual reality business continues to lose money, and personal computers remain weak at Microsoft. Tesla’s (TSLA) quarterly numbers exceeded Wall Street’s forecast, but its talk of a challenging environment appeared to disappoint investors. The strong ad market reported by Alphabet and Meta might be promising for both Apple and Amazon when they report later this week, Barron’s notes. Apple doesn’t break out advertising revenue, but it’s a growing component in its Services segment. However, the weak PC and cloud spending could potentially drag on Amazon and Apple’s results this Thursday. Nvidia is expected to report later in August.

Seasonal disorder: The period from August through October is often weak on Wall Street. Last year’s lived up to that reputation when the SPX posted a summer peak in mid-August before descending 15% by mid-October to its 2023 low. And of course, several historic market plunges occurred in October, if the years 2008, 1987, and 1929 mean anything to you. So-called “seasonal factors,” however, can’t always be counted on. In 2021, for instance, the SPX climbed between early August and late fall despite a brief September skid. As we’ve pointed out recently, the SPX’s rally this year still reflects a very small portion of its constituents, even if it has broadened lately. With valuations now arguably on the high side for mega-cap stocks that propelled the SPX, there’s concern about how much tailwind might remain for the index, which has a historically high forward price-earnings (P/E) ratio above 19. To better track market conditions, it might be more useful to check sector performance, or the Equal-Weight SPX (SPXEW), which strips out market capitalization. The SPX itself will likely continue to closely track the fortunes of the “trillion-dollar club” stocks that dominate the index.

Calendar

Aug. 1: July ISM Manufacturing Index and June Job Openings, and expected earnings from Altria (MO), Caterpillar (CAT), Illinois Tool (ITW), Advanced Micro Devices (AMD), Merck (MRK), Pfizer (PFE), Uber (UBER), Allstate (ALL), and Starbucks (SBUX)

Aug. 2: ADP Employment Change, and expected earnings from DuPont (DD), Kraft Heinz (KHC), Yum Brands (YUM), Clorox (CLX), PayPal (PYPL), and Shopify (SHOP)

Aug. 3: June Factory Orders, July ISM Non-Manufacturing Index, and expected earnings from Amazon (AMZN), Apple (AAPL), Coinbase (COIN), Amgen (AMGN), Alibaba (BABA), Hyatt Hotels (H), and Kellogg (K)

Aug. 4: July Nonfarm Payrolls and expected earnings from Dominion Energy (D), Enbridge (ENB), and Corebridge Financial (CRBG)

Aug. 7: June Consumer Credit and expected earnings from Palantir (PLTR) and BioNTech (BNTX)

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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