Stocks Correct Ahead of Key Earnings, Fed Meeting In Focus
4:11 pm Tuesday, July 27th, 2021
The stock market was dragged by weakness in its mega-cap components and many of the energy and industrial companies. The negative price action has brought attention to the fact that the S&P 500 closed yesterday up 4.5% from its July 19 low (five-session winning streak), suggesting it was probably vulnerable to downside pressure. Risk sentiment has been pressured by several factors, with the most weight belonging to the mega-caps amid worries that they’ll behave like Tesla (TSLA) when they report earnings.
Tesla shares were up as much as 1.4% after the open following its positive earnings report, but shares are now down 3.7%. Apple (AAPL), Microsoft (MSFT), and Alphabet (GOOG) will report after today’s close.
The S&P 500 information technology (-1.7%), communication services (-1.3%), and consumer discretionary (-1.8%) sectors, which contain the mega-cap growth stocks, are among the weakest sectors today. The energy (-1.7%) and industrials (-0.7%) sectors are also weak.
The industrials sector has included negative earnings reactions in UPS (UPS) and 3M (MMM), even though they also beat expectations. UPS shares are down 8%.
Conversely, investors are leaning defensively into the utilities (+1.6%), real estate (+0.9%), health care (+0.3%), and consumer staples (+0.3%) sectors. The defensive bias can also be seen in the 10-yr yield trading lower by four basis points to 1.24% and the CBOE Volatility Index flirted with 20.00.
Lingering growth concerns could be contributing to the defensive mindset amid news that the CDC will recommend that vaccinated Americans wear masks indoors in COVID-19 hot spots and by a relatively disappointing June report for durable goods orders. The Conference Board’s Consumer Confidence Index for July was better-than-expected, though.
