This Week: NAS100 to fall further?

• Investors have been rotating away from Big Tech, to small caps
   
• Falling inflation and earnings recovery drive change
   
• Nasdaq 100 hits major Fibonacci retracement level
   
• Key events: Alphabet & Tesla earnings, US PCE Deflators

Megacap tech stocks have dominated both the Nasdaq 100 and the benchmark S&P 500 index’s gains over the past year.

But worries about the narrow breadth of market gains has been an enduring theme.

We’re now seeing a rotation out of the “Magnificent Seven” stocks and the tech sector in general that has slightly surprised markets in its strength, with investors jumping into small cap companies and other previously unloved sectors.
 

Falling inflation and a more broad-based earnings recovery has sparked the shift, along with a global sell-off in semiconductor companies.

Prices in the tech-heavy Nasdaq 100 index have fallen to a major Fib retracement level of the late May low to recent all-time high at 19,723.

The midpoint of this move sits at 19,430. Below here sits the 50-day simple moving average at 19,292.

US President Baiden's decision not to run for re-election this year may also shape the market narrative in the foreseeable future. 
 

Events Watchlist:
 

• Tuesday, July 23rd: Alphabet, Tesla Q2 Earnings

The first major Big Tech earnings hit the wires, after very mixed performance over the past week. That means there will be much focus on Google and Tesla’s results.

If the former beats estimates, it will mark the sixth straight quarter of exceeding EPS expectations.

Ongoing tailwinds from robust advertising spending and growth in Google Cloud fueled by AI advancements are expected to underpin the figures.

Wall Street sees Tesla posting a year-over-year decline in earnings on higher revenues. Elon Musk’s EV maker has lost market share to rivals in its domestic market.

The story is similar in other countries, especially in China where BYD are competing hard. The stock has rallied around 40% recently with support around $240 and resistance at the recent high at $271.

• Friday, July 26th: US Core PCE Deflator

This measure of prices is commonly known as the Fed’s favoured inflation gauge.

That is because the data is broader in nature than the more well-known CPI figures, as it covers goods and services prices, plus spending from rural and urban consumers.

The PCE basket is also updated more often so better accounts for consumer substitution – think new technology. The main print is likely to cement the current disinflation theme and September Fed rate cut.

Here’s a comprehensive list of other key economic data and events due next week:
 

Monday, July 22

• NZ: Balance of Trade
   
• CN: Loan Prime Rate
   
• ECB: Monetary Analysts’ Survey
   
• US: Chicago Fed National Activity Index
   
• Earnings: Verizon
   

Tuesday, July 23

• EU: Consumer Confidence
   
• US: Home Sales
   
• Earnings: Alphabet, Tesla, LVMH, Coca-Cola, Visa, General Electric
   

Wednesday, July 24

• AU: Judo Bank PMI
   
• DE: Gfk Consumer Confidence, HCOB PMI  
   
• EU: HCOB PMI
   
• CA: BoC Interest Rate Decision, Monetary Policy Report
   
• Earnings: IBM, AT&T, Ford Motor,  
   

Thursday, July 25

• UK: CBI Business Optimism Index & Industrial Orders
   
• US: GPD, Initial Jobless Claims, Durable Goods Orders
   
• EU: ECB President Lagarde Speech
   
• Earnings: AbbVie, AstraZeneca, Unilever
   

Friday, July 26

• JP: Tokyo CPI
   
• EU: Consumer Inflation Expectations
   
• US: PCE Price Inde