What Happened?
This week, U.S. stocks experienced notable declines, influenced by a global technology outage that disrupted airports and businesses worldwide. The tech-heavy Nasdaq Composite fell 0.9%, extending its weekly decline to 3.8%, while the S&P 500 dropped 0.8%, and the Dow Jones Industrial Average shed 1%. Despite these losses, the Dow was the only major index to register a weekly gain of 0.7%. A significant rotation out of megacap tech stocks into smaller and more cyclically oriented names was observed, driven by rising optimism around potential Federal Reserve interest rate cuts. The Russell 2000, representing small-cap stocks, outperformed, climbing 1.68% for the week. Investors reacted to mixed earnings reports and geopolitical uncertainties, while bitcoin saw a significant rise, hitting its highest level since mid-June.
Retail Sales Depressed By Lower Gas Prices and Auto Cyberattack – Still Silver Lining
- Retail sales were unchanged in June per the US Census Bureau report
- Economists had forecast a 0.4% decline
- Falling gas receipts and fewer purchases of auto dealers due to cyberattacks preventing purchases being finalized dragged on the headline figure
- Stripping out auto and gas sales, the retail number grew 0.8% for the month
The key takeaway – If we set aside the drop in gas prices, which benefits consumers, and the temporary issues in the auto dealer industry, the June retail sales report indicates a stable economy maintaining its footing. If we were to use retail sales as a marker, it suggests a steady economic expansion with no clear signs of significant acceleration or decline. However, other data, such as leading economic indicators, consumer reports, and manufacturing surveys, have raised concerns among investors about the future performance of the American economy. This performance will ultimately impact the extent to which the Federal Reserve loosens its policy. With some rate cuts likely baked in, a stronger economy would limit the extent of these cuts as the Fed would aim to prevent further inflation, whereas a weaker economy might see substantial rate reductions to stabilize it. In either case, as the last few years have shown, the level of interest rates will significantly impact equity market performance moving forward.
Jobless Claims Hit Highest Level Since August
- Weekly jobless claims rose to 243,000 for the week ending July 13, marking the highest level since August 2023 and exceeding expectations of 229,000.
The key takeaway – Weekly jobless claims rose to 243,000 for the week ending July 13, exceeding expectations of 229,000 and marking the highest level since August 2023. Continuing claims reached nearly 1.87 million, the highest since November 2021. While part of the increase is attributed to Hurricane Beryl, economists note a broader trend of emerging labor market weaknesses. This data supports calls for the Federal Reserve to consider cutting interest rates soon, as inflation slows and the labor market shows signs of softening. The uptick in jobless claims bolsters the argument for the Federal Reserve to start cutting interest rates. With the unemployment rate rising for the third consecutive month to 4.1% in June, markets are now pricing in a 98% chance of a rate cut by September.
Mass IT Outage Hits Global Airports, Businesses, and Broadcasters Around the World
- The IT glitch, attributed to a faulty software update by cybersecurity firm CrowdStrike, affected Microsoft cloud computing services and disrupted various sectors, including medical facilities, businesses, and police forces worldwide, with recovery requiring manual system restarts for some users.
The key takeaway – A massive IT glitch affecting Microsoft cloud computing services early Friday disrupted major airlines, medical facilities, businesses, and police forces worldwide. The cybersecurity firm CrowdStrike attributed the outages to a routine software update gone wrong, not a cyberattack. Although Microsoft announced recovery of its 365 apps and services, individual customers may still be impacted. The glitch caused widespread chaos, grounding many flights globally and disrupting services in several countries. Major airlines like American Airlines, Delta, and United issued ground stops, and key institutions, including Berlin’s Brandenburg Airport and the UK’s National Health Service, reported significant delays. The problem, fixed by CrowdStrike on their end, required manual restarts for some systems, prolonging the resolution time.
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