What The Nasdaq-100 Will Look Like After July 24

Economists expect this morning’s retail sales data to show the strongest growth since January. If a recession is coming, somebody forgot to tell the consumer!

Market

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Prices as of 4 pm EST, 7/17/23

Macro

China represents the world’s largest market for chipmakers.

In 2022, it was responsible for $180 billion of $555.9 in global semiconductor purchases.
The White House has recently taken action to impose restrictions on the sale of chips and related US tech to China.
Industry players at home, naturally, have warned against such action.
Yesterday, industry executives met with Biden administration officials to urge them to avoid further restrictions.

Manufacturing activity unexpectedly expanded for the second straight month in July.

Expected to fall into contraction, The Empire State Manufacturing Survey’s general business conditions index dropped less than expected to 1.1.
Underlying components were mixed as new orders and employment increased but shipments declined.
Outlook for the next 6 months also deteriorated.
In a positive for inflation, prices paid and received fell to their lowest since August 2020 and July 2020, respectively.

Yesterday we noted how economists were (again) pushing out recession expectations.

Goldman Sachs has similarly cut its odds of a US recession within the next 12 months to 20% from 25%.
The bank’s main reasons for optimism–like those of said economists–are continued progress on inflation and strong fundamentals despite significantly higher borrowing costs.
Treasury Secretary Janet Yellen agrees: she told reporters yesterday she does not expect a US recession.

Goldman Sachs

Stocks

Here’s something you already know: the Nasdaq-100 has become too concentrated.

Currently, the top 7 stocks account for 56% of the index.
After July 24, their collective weight will be brought down to 44%.
Stocks seeing the biggest declines in weight: NVDA (NASDAQ:NVDA) (3%), MSFT (NASDAQ:MSFT) (3%), AAPL (NASDAQ:AAPL) (0.6%).
It will be just the second such “special rebalance” in 25 years (the previous one in 2011 had no clear impact on the affected stocks).
Here’s what the index will look like after the rebalancing:

EPS estimates are seeing more positive revisions than negative ones as we head into earnings season.

In fact, consensus EPS has seen fewer pre-season cuts than usual.
At the same time, earnings uncertainty—a measure of analyst forecast dispersion—has been falling for the S&P 500 as a whole.
Uncertainty surrounding Tech earnings, however, has been rising:

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Energy

OPEC, the International Energy Agency (IEA), and the US Energy Information Administration (EIA) all see oil demand rising in Q3 (chart).

They also forecast tightening supply in the second half of the year.
In fact, according to Standard Chartered, the global market is already in a deficit.
Don’t tell that to oil investors - traders have remained sellers amid warnings of a tight market.

@mikezaccardi

Earnings

With 30 companies representing 11% of S&P 500 earnings having reported, here’s a (very) early look at Q2 trends:

Companies are reporting a -7.1% YoY decline in earnings.
The beat rate is above average at 77% but below last quarter’s 90%.
In aggregate, reported earnings have topped estimates by 8.8%.

Fact Set

What we’re watching today:

Bank of America (NYSE:BAC)
Novartis (NYSE:NOV)
Morgan Stanley (NYSE:MS)
Lockheed Martin (NYSE:LMT)
Prologis (NYSE:PLD)
Goldman Sachs (NYSE:GS)
Charles Schwab (NYSE:SCHW)
PNC Financial (NYSE:PNW)
Bank of NY Melon (NYSE:BK)
Omnicom (NYSE:OMC)
JB Hunt (NASDAQ:JBHT)
Synchrony (NYSE:SYF)
Interactive Brokers (NYSE:IBKR)
Pinnacle Financial (NASDAQ:PNFP)
Western Alliance (NYSE:WAL)

Top Headlines

Euro AI battle: France and the UK are competing to establish themselves as the leading country for AI in Europe.
Survey says: BofA’s Global Fund Managers survey reveals increasing optimism about a soft landing.
Diversification rules: Large US investment funds are being restricted from purchasing more shares in popular tech stocks.
Telecom slump: AT&T shares fell to their lowest closing price in 30 years following a WSJ investigation.
Ridesharing: Shares of Uber dropped following a court victory for its drivers.
Ford EVs: Ford reduced the price of its base model F-150 Lightning by 17% to ramp up competition.
Twitter writedown: Cathie Wood’s ARK wrote down its Twitter stake by 47%.

Crypto