Dow Jones, Nasdaq, S&P 500 weekly preview: Focus shifts to Q2 earnings

The Dow Jones Industrial Average (DJIA) surged on Friday, driven by gains in Home Depot (NYSE:HD) and Caterpillar (NYSE:CAT), as investors began to look beyond the technology sector's top performers. The Dow climbed 247.15 points, or 0.62%, to close at 40,000.90, hitting a new all-time high of 40,257.24 during the session.

The S&P 500 also rose, gaining 0.55% to close at 5,615.35, while the Nasdaq Composite increased by 0.63%, ending at 18,398.45.

On Thursday, the S&P 500 experienced its worst day since late April due to a significant market rotation away from Big Tech, with Nvidia (NASDAQ:NVDA) dropping 5.6%.

Despite the sell-off in other major indices, the Dow managed to edge up by 0.08%. For the week, the Dow advanced 1.6%, boosted by a report on Thursday showing a 0.1% decline in the consumer price index (CPI) for June.

This week, the focus will shift to the earnings season, as economic data and central banker speeches will be relatively light. Nevertheless, market participants will keep an eye on economic reports for insights into the Federal Reserve’s future policy decisions.

The standout event to watch is the June retail sales report on Tuesday.

“We forecast control retail sales fell 0.3%M in June,” Morgan Stanley economists said in a note.

“Softer payrolls, goods deflation, and a decline in auto sales, likely affected by the cyber attack, probably weigh on sales. Headline sales fall a greater 0.5%M. Our forecast is consistent with 2Q24 real consumption rising at a 1.4% annual rate.”

Moreover, June's Industrial Production and Existing Home Sales data are due on Wednesday.

J&J, Netflix and banks to report earnings this week

Nonetheless, much of the market’s attention will be directed toward the Q2 earnings season, which kicked off last week.

Wall Street banks were the first to report. While JPMorgan and Citigroup are among the worst performers on the S&P 500 today, both banks posted Q2 earnings that exceeded expectations.

Citi reported revenues of $20.13 billion, surpassing the forecast of $20.11 billion, and a net income of $3.03 billion, which was 11% higher than the estimated $2.72 billion. JPMorgan’s results were even better.

This week, several companies are expected to be in the spotlight, most notably Johnson&Johnson (NYSE:JNJ) and Netflix Inc (NASDAQ:NFLX), due to report earnings on Wednesday and Thursday, respectively.

Morgan Stanley, Bank of America, ASML (AS:ASML), and American Express (NYSE:AXP) will also unveil their latest quarterly performance data.

What analysts are saying about US stocks

JPMorgan: “The historical spread between the performance of S&P500 and SPW is extreme. Given this, it is probable that the divergence peaks, but that could happen through winners stalling, and not through laggards rallying. Post the benign CPI print last week, SPW is bouncing again, but we fear the conditions for a sustained rally are not there, and look for the consolidation beneath the surface to continue through the summer.”

RBC: “The thing that we’re most interested to get color on is whether earnings dynamics will give US equity investors a reason to continue the rotation that appeared to begin (yet again) last week away from Growth, Large, and Mega Cap, to Value, Small Cap, and everything else. As we discussed in Strategy Spotlight earlier this month, valuations and positioning have set the stage for an eventual rotation to new leadership. But this has been true for quite some time, and we’ve had several false starts. Fundamentals need to cooperate. Greater confidence around Fed cuts coming soon clearly helps to make the case for moving back into Small Caps, and we confess that we exited last week more comfortable nibbling on Small Caps.”

Evercore ISI: “The U.S. economy slowed but recession was averted in 2012 and in 2015-6, and stocks became more volatile but quickly resumed their upward trajectories. In 2024, absent signs of imminent Recession, SPX remains on track to 6,000. Russell 2000, trading at a below-average premium vs the S&P 500, is expected to Outperform, given the Fed is ready to cut to support growth. Small is Beautiful.”

Yardeni Research: “We expect that stock investors will be focusing on Q2's earnings reporting season over the rest of this month through early August. If earnings turn out to be better than expected (as we project), then the bull market should broaden as investors continue to discount cuts in the federal funds rate later this year, as they did on Thursday and Friday. The breadth of positive three-month forward earnings growth rates among the S&P 500 companies continues to widen.”

Bank of America: “The big question in the market is “is growth slowing too much?” But tamed inflation means the Fed can solely focus on growth, putting the Fed in a much better position, especially after 5.25ppt of hikes. The stars are aligning for the rotation into rate-sensitive cyclicals: rate pressure is easing, growth would ultimately be supported by the Fed, and most importantly, earnings are broadening out as the Other 493 comes out of an earnings recession.”