Stock Market This Week: Five Themes to Watch

Although the Friday, July 22 session ended on a sour note, the benchmark S&P 500 managed to end up positive for the past week, gaining 1.7%. The venerable Dow Jones posted a similar performance during the same period, up 1.3%, while the technology-centric Nasdaq hauled in the biggest one-week return at 1.9%. Still, investors are far from being in the safe zone.

Next week, a torrent of key economic data along with several pivotal earnings reports will hit the airwaves. For the former, experts will be focused on the gross domestic product (GDP) for the second quarter, which will provide a clearer barometer regarding recession fears. At the end of the week, the Federal Reserve’s preferred personal consumption expenditures inflation data comes out, broadcasting perhaps the most realistic view of the consumer economy.

For the latter, the two biggest corporations in the U.S. – Microsoft (MSFT) and Apple (AAPL) – are set to release earnings results on Tuesday and Thursday, respectively. Though these consumer electronics giants have proven popular during the COVID-19 years, weakness in their armor could lead to panicky investors. In total, more than a third of S&P 500 companies will be reporting this week, setting the stage for a high-stakes poker game.

If you have any interest in the business and investing ecosystems, you’ll want to focus on these five key themes this week.

Big Data to Spark Big Moves

Throughout much of this year, brewing fears of a global recession have prevented many households from making too many major financial decisions. As well, the skyrocketing inflation rate – hitting 9.1% in June on a year-over-year basis – directly resulted in the decline of the dollar’s purchasing power. Indeed, the erosion of currency strength since the start of the COVID-19 pandemic equates to roughly 13 cents on the dollar.

In lay terms, this means that if you have $100 in your wallet, you actually only have $87 as the prices of consumer goods have increased substantially. Now, $13 may not sound like much but at scale, it can equate to serious money. For instance, against the median household income of approximately $70,000, families could end up losing about $9,000 a year to inflation.

Therefore, the headline economic numbers such as GDP and personal consumption expenditures will likely carry greater significance than they did in quite some time. An optimistic read can help inspire investor confidence while a pessimistic read can inspire the opposite sentiment.

Hope and Despair in Eastern Europe

Following months of bitterly violent fighting, the Associated Press reported that Russia and Ukraine signed separate agreements on Friday with Turkey and the United Nations. This breakthrough in an otherwise ugly circumstance clears the way “for the export of millions of tons of desperately needed Ukrainian grain — as well as some Russian grain and fertilizer — across the Black Sea. The long-sought deal ends a wartime standoff that has threatened food security around the globe.”

In all, the U.N. plan will enable Ukraine – among the world’s key breadbaskets – to export 22 million tons of grain and agricultural goods that were previously stuck in Black Sea ports because of Russia’s military aggression. U.N. Secretary General Antonio Guterres described this act of diplomacy as a “beacon of hope” for millions of hungry people.

Still, no one should be in any doubt about the trajectory of the fighting in eastern Europe. First, Ukrainian President Volodymyr Zelenskyy told The Wall Street Journal that Russian President Vladimir Putin rebuffed his calls for a diplomatic solution to the underlying geopolitical tensions for the past three years. Second, the Biden administration recently signed off on more weapons to Ukraine, thus almost guaranteeing exacerbated animosities.

Social Media as the Canary in the Coal Mine

Last Thursday, youth-centric social media platform Snap (SNAP) reported disappointing Q2 financial results. Heading into the disclosure, analysts anticipated earnings per share to come in at a loss of 1 cent while forecasting $1.14 billion in revenue. Instead, Snap delivered a loss of 2 cents and $1.11 billion in sales.

On a positive note, global daily active users (DAUs) hit 347 million, up above analysts’ expectations for 344.2 million. Still, this small victory was not enough to placate investors, who punished SNAP stock the following day. Once the closing bell rang out for the Friday session, SNAP dropped 39%.

What’s particularly worrying for market observers is the reason why Snap’s Q2 results weren’t up to snuff. While management did note industry-specific headwinds such as increased competition, it also mentioned factors that affect myriad other sectors, such as a challenging economy and slowing advertising demand.

Interestingly, Snap said it plans to slow hiring, which is in line with trends witnessed in the technology space.

Insider Trading of Cryptos

Amid all the clatter of war, inflation and the economy, The New York Times published a report last week that perhaps in any other time would have generated non-stop media coverage. In its report, federal authorities filed criminal and civil charges against a former Coinbase (COIN) employee and two other men in an insider trading case involving cryptocurrency assets.

Specifically, the allegation focuses on the trading of cryptos based on confidential information; that is, people with privileged, non-public information regarding the timeline of when certain digital assets would be posted to Coinbase’s exchange service leveraged this knowledge to their benefit – and to the detriment of retail investors who reasonably assumed were trading in a fair market.

While the case is young, it does impose a worrying cloud over the virtual currency complex. Essentially, illicit activities will only attract government regulators, which then raises the specter of broader (centralized) control mechanisms.

Earnings in Focus

As stated near the top, the upcoming week is a massive one for financial disclosures, with more than a third of S&P 500 companies reporting. In addition to the previously mentioned heavy hitters, Alphabet (GOOG, GOOGL) will disclose its earnings results on Tuesday, with analysts likely keying in on its advertising business for important clues about internet-dependent businesses.

On Wednesday, auto parts retailer O’Reilly Automotive (ORLY) will reveal its Q2 results, which should attract economists to the fold. With inflationary pressures worsening, many people have put off buying a new (or new-ish) car, meaning that O’Reilly may be a cynical beneficiary.

Finally, on Thursday, all eyes will be on Amazon (AMZN). The e-commerce giant prides itself in its dominant role in the business ecosystem. However, in the year so far, AMZN is down 28%, meaning that the underlying company must deliver some positive news to avoid further market damage.

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