The start of a monetary easing cycle is a powerful driver for investors, who have lost faith in technology stocks and need lower borrowing costs to validate their bets on riskier assets like smaller companies. This is especially crucial given that the second-quarter earnings season, which was expected to be a launching pad, looks more like a damp squib. Bloomberg reports that only 43% of large US companies exceeded sales expectations in Q2, a figure much lower than usual. Analysts often underestimate their figures, guided by companies who have every incentive to exceed expectations.

Today's inflation data was eagerly awaited, and investors can breathe a sigh of relief. US prices rose moderately in June, in line with expectations. The personal consumption expenditures (PCE) price index inched up 0.1% last month after being steady in May, according to the Commerce Department's Bureau of Economic Analysis. On an annual basis, it rose 2.5%, getting very close to the Fed’s 2% inflation target. Excluding the volatile food and energy components, the PCE price index rose 0.2% last month.

Yesterday’s session was marked by volatility and ended in a classic fashion: after a purge session for the Nasdaq 100 on Wednesday, investors flocked back to the technology index at the start of the session to play for a rebound. However, the mass of buyers eventually lost their footing in the face of the number of sellers, before capitulating. As a result, the Nasdaq 100 lost 1.06% at the bell, with nine of its ten largest caps ending in the red. Not all was doom and gloom on Wall Street yesterday, as defensive sectors and bargain-basement stocks performed well. The venerable Dow Jones gained 0.2%, while the Russell 2000 small- and mid-cap index recovered 1.3%. The pariah index of recent quarters gained almost 10% in one month, while the Nasdaq 100 lost 4.4%, a performance differential of 14.3%.

Staying with performance and the Nasdaq 100, the index has dropped 8.99% from its July 10 highs, an impressive slide in 11 trading days. If today's session doesn't go well, us commentators will have to return to our usual semantics. When things drop a little, we’ll talk about consolidation. This term covers all periods of moderate decline in the equity markets. If indices fall a little too far, it’ll be a correction, which occurs when an index loses 10% from its nearest high. Historically, corrections last four months and result in a 13% drop. There have been some thirty correction phases in the United States over the last forty years. So, with the Nasdaq 100 currently down 9%, it's not far from a correction. When the going gets tough, we enter a Bear Market. This is when the stock market registers a prolonged phase of decline, typically defined as a drop of 20% or more. The most intense and longest bear market in recent years was in 2007/2009, when many indices lost more than half their value. There have been two bear markets in the last five years. The one in March 2020 was so fast and swiftly swept away by a rebound that it is unique in the annals. The most recent was from January to October 2022. For the record, there have been 7 bear markets since 1980, including three between 2000 and 2020. With the exception of March 2020 and 2022, the previous three coincided with an economic recession.

In the Asia-Pacific region, Taiwan's stock market is back after being suspended for two days to allow a typhoon to pass. Heavily exposed to the semiconductor sector, which has been slammed on the stock market this week, Taipei lost 4.2%. Elsewhere, the rebound attempt is going moderately well. Japan gained 0.5%, mainland China and Hong Kong 0.1%. Things are better in Australia, South Korea, and India, with gains of 0.8% to 1.6%. European indices are looking up, and so are futures on Wall Street.

Economic highlights of the day:

Consumer confidence in France, the Core Personal Consumption Price Index in the US, as well as Personal Income and Household Consumption, and the University of Michigan Sentiment Index. The full agenda is here. 

The dollar is down to EUR 0.9209 and GBP 0.7770. The ounce of gold is little changed at USD 2374. Oil remains low, with North Sea Brent USD 81.93 a barrel and US light crude WTI at USD 77.94. The yield on 10-year US debt reaches 4.24%. Bitcoin is trading at USD 67,000.

In corporate news:

  • 3M Company - The industrial conglomerate raised the bottom end of its adjusted annual earnings guidance, expecting benefits from restructuring and growing demand for electronics, boosting the stock over seven percent in pre-market trading.
  • Apple, Nvidia, Alphabet, Microsoft, Meta Platforms, Amazon, and Tesla gained between zero point seven percent and two point two percent in premarket trading after a turbulent week.
  • Intel, Broadcom, Qualcomm, Micron Technology, and Arm Holdings each advanced by around two percent.
  • Meta - The Franco-Italian group EssilorLuxottica mentioned that Meta is considering taking a stake in its capital, as reported by the Financial Times on July 18.
  • Tesla - Elon Musk is discussing a possible five billion dollar investment in his AI startup xAI with the group's board, raising conflict of interest concerns.
  • Electronic Arts, Take-Two Interactive, Walt Disney, and Warner Bros Discovery's actors in video games and motion capture have gone on strike over AI development rights, leading to a work stoppage in Hollywood.
  • Colgate-Palmolive's pre-market trading is up one point three percent after raising guidance for annual growth in organic sales and adjusted EPS.
  • Bristol-Myers Squibb gains four point seven percent after reporting better-than-expected second-quarter results.
  • Biogen falls five point six percent in pre-market trading as the EU's drug regulator rejects its Alzheimer's treatment.
  • Allegro Microsystems' shares dropped six point two percent after the close as the company issued twenty-five million shares.
  • Ford, IBM, and AT&T are due to publish their quarterly results on Wednesday.

Analyst recommendations:

  • Alcoa Corporation: Baptista Research upgrades to buy with a target price raised from USD 34 to USD 42.90.
  • Cbre Group, Inc.: Evercore ISI upgrades to outperform with a target price raised from USD 100 to USD 123.
  • Dexcom, Inc.: JP Morgan downgrades to neutral with a target price reduced from USD 145 to USD 75.
  • Huntington Bancshares Incorporated: Baird downgrades to neutral with a target price of USD 15.
  • Kinder Morgan, Inc.: Baptista Research downgrades to underperform with a target price raised from USD 20.10 to USD 20.80.
  • Netflix, Inc.: First Shanghai Securities upgrades to buy with a target price raised from USD 690 to USD 742.
  • Rpm International Inc.: JP Morgan downgrades to neutral with a target price of USD 120.
  • Southwest Airlines Co.: Deutsche Bank downgrades to hold with a target price reduced from USD 32 to USD 29.
  • Steel Dynamics, Inc.: Baptista Research downgrades to hold with a target price raised from USD 121.80 to USD 138.
  • Tesla, Inc.: President Capital Management Corp upgrades to buy with a target price raised from USD 185 to USD 255.
  • Visa, Inc.: Fubon Securities downgrades to neutral with a target price reduced from USD 318 to USD 280.
  • American Airlines Group Inc.: JP Morgan maintains its overweight rating and reduces the target price from twenty-one to USD 15.
  • Apple Inc.: Raymond James maintains its outperform rating and raises the target price from USD 200 to USD 250.
  • Crowdstrike Holdings, Inc.: Barclays maintains its overweight recommendation and reduces the target price from USD 400 to USD 285.
  • Floor & Decor Holdings, Inc.: Wells Fargo maintains its equal weight recommendation and reduces the target price from USD 125 to USD 95.
  • Lululemon Athletica Inc.: Evercore ISI maintains its outperform rating and reduces the target price from USD 400 to USD 300.
  • New York Community Bancorp, Inc.: Wedbush maintains a neutral recommendation with a price target raised from three point fifty to USD 10.50.
  • Pool Corporation: Baird maintains its neutral recommendation with a price target raised from USD 305 to USD 377.
  • Stellantis N.V.: Intesa Sanpaolo maintains its hold recommendation with a target price reduced from twenty-two to EUR 17.10.
  • Transunion: RBC Capital maintains its outperform rating and raises the target price from USD 85 to USD 106.
  • Omnicom Group., Inc.: Baptista Research upgrades to outperform with a target price raised from USD 106.90 to USD 108.90.
  • Tyler Technologies, Inc.: Goldman Sachs maintains its buy recommendation and raises the target price from USD 515 to USD 627.
  • Universal Health Services, Inc.: Cantor Fitzgerald maintains its underweight recommendation and raises the target price from USD 162 to USD 219.
  • West Pharmaceutical Services, Inc.: Deutsche Bank maintains its hold recommendation and reduces the target price from three hundred fifty-five to USD 265.
  • Discoverie Group Plc: Shore Capital downgrades to sell.
  • Lloyds Banking Group Plc: AlphaValue/Baader Europe downgrades to sell with a target price reduced from GBX 51.70 to GBX 51.60.