Yesterday marked a rare occurrence of divergence between the Nasdaq 100, which experienced a 2.3% decline, and the Dow Jones, which managed to close with a 0.5% gain. While the two US indexes share some similarities, their differences are quite pronounced. The Nasdaq 100 is prominently composed of technology companies, boasting several industry heavyweights. It comprises 100 companies whose influence is determined by their floating capitalization, providing a broad representation of the tech sector's performance. In contrast, the Dow Jones consists of just 30 stocks, and its movement is driven by their share prices, utilizing a somewhat antiquated system that can be attributed to the index's long-standing history. Notably, UnitedHealth, trading at USD 504, holds 2.5 times more weight in the index than Apple, which trades at USD 193. This is despite Apple's market capitalization of $3,040 billion, compared to UnitedHealth's $470 billion market capitalization. Such a discrepancy in weighting illustrates the Dow Jones' unique methodology. The Dow Jones is predominantly influenced by finance and healthcare companies, reflecting its composition, whereas the Nasdaq 100 predominantly comprises digital-focused companies, emphasizing its role as a hub for tech-oriented businesses. These distinct characteristics further differentiate the behavior and trends of the two indices in the market.

In a nutshell, the technology sector experienced a significant setback yesterday, primarily driven by three key stocks. Tesla and Netflix were responsible for the initial blow, as their disappointing financial performances for the second quarter caused a considerable drop in their stock prices. Both companies suffered losses of approximately 8% to 10% at the close of trading, sparking concern and unease among investors. Adding to the turmoil, TSMC, the prominent chip giant, delivered lackluster short-term forecasts, leading to a broader downturn in the semiconductor sector. While this news had some impact, it didn't come as a major surprise, as analysts had already been predicting that the chip market was nearing the bottom of its cycle. An anticipated wake-up call is expected early next year, which somewhat lessened the surprise effect of TSMC's announcement. Overall, the combination of disappointing financial results from Tesla and Netflix, along with TSMC's uninspiring forecasts, weighed heavily on technology stocks and contributed to a challenging day for the sector.

Turning our attention to the current state of the Dow's resistance, it has been primarily influenced by the financial sector, which showed remarkable resilience yesterday, despite some initially mediocre figures from Goldman Sachs (+3%). Prior to Wall Street's closing, the European markets demonstrated a clear preference for the upward trajectory, notably Paris, Zurich, and London, all achieving gains close to 0.7%. As we move into today's trading session, the focus will undoubtedly be on corporate results. It includes American Express' results in the United States as well as Thales and Glencore in Europe

In Asia-Pacific, there's something for everyone. Slight losses in Japan and Australia, a moderate rise in Hong Kong, equilibrium in South Korea, and a more marked contraction in India, where the drop in sales was more than offset by a rise in the number of employees in India, where consulting giant Infosys 's 9% drop following a downward revision of its targets is taking its toll.

It's the third Friday in July, which means it's the monthly clearing session, with index and equity derivatives coming due. This day of the three witches has a special flavor, as it comes just before the Nasdaq is due to rebalance on July 24 to reduce the weight of its majors. The volatility that traditionally increases during these sessions could be reinforced.

Today's economic highlights

There's little or nothing on the macro agenda. The whole agenda here.

The dollar is up to 0.8988 EUR and 0.7782 GBP. The ounce of gold trades at 1962 USD. Oil rebounds, with North Sea Brent at USD 80.55 a barrel and US light crude WTI at USD 76.57. The yield on 10-year US debt reaches 3.84%. Bitcoin is trading at 29,800 USD.

In corporate news:

American Express exceeded earnings forecasts for the second quarter on Friday, as its affluent customers continued to spend. The group reported earnings of $2.89 per share, against an average consensus of $2.81.
 
Chewy was up 2.3% before the opening, with billionaire investor Steven Cohen reporting a 5.8% passive stake in the company.
 
Warner Bros and Mattel are up before the opening, as the "Barbie" movie opens in cinemas worldwide on Friday. Shares are up 1% and 2% respectively in pre-market trading.
 
Emergent Biosolutions was up 16% in pre-opening trading, as the US Food and Drug Administration (FDA) approved Emergent's anthrax vaccine, Cyfendus, for use in adults aged 18 to 65.
 
Digital World Acquisition gained 18.5% after the close of trading, after it settled fraud charges brought against it by the US Securities and Exchange Commission (SEC). The company, a SPAC, was due to merge with former US President Donald Trump's media company.
 
CSX - The US rail operator's results fell short of Wall Street expectations, as the group suffered from lower volumes and higher fuel prices. The share price fell by around 5% before the opening.
 
Activision Blizzard - Roth MKM lowers its recommendation from "buy" to "neutral".
 
Blackstone - JP Morgan lowers its recommendation from "overweight" to "neutral". The stock loses 1.82% before the opening.
 
Carvana - Piper Sandler lowers its recommendation from "overweight" to "neutral".
 
Discover Financial Services - Piper Sandler lowers its recommendation from "overweight" to "neutral". 

Analyst recommendations:

  • Activision Blizzard: Roth MKM downgrades price target to $95. To neutral from buy.
  • Babcock International Group: Citi raised the recommendation to buy from neutral. Price target set to 500 pence.
  • Blackstone: J.P. Morgan cut the recommendation to neutral from overweight. PT set to $111
  • Hargreaves Lansdown: Jefferies raised to buy. PT set to 1015 GBp.
  • HSBC: BNP Paribas stays neutral. PT from 735 to 740 GBp.
  • Intuitive Surgical: Piper Sandler raised the target to $385 from $315. Maintains overweight rating.
  • Knight-Swift Transportation Holdings: Evercore ISI decreases to inline from outperform. Price target down 6.9% to $52.
  • United Airlines: Susquehanna Financial raised the target to $57 from $50. Maintains neutral rating.
  • Woodward: Truist Securities maintains hold rating. PT implies a 9.2% decrease from last price.