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As the busiest week of the current earnings season came to a close on Friday, stocks ended lower, pressured by signs of weakness from the very megacap companies that, over the past year, boosted the market to new highs. Now, after worries about inflation, surging cases of the Delta variant of coronavirus worldwide, and better than expected earnings releases sparked investors to whipsaw between risk-off and risk-on sentiment, analysts are bracing for this coming Friday’s monthly nonfarm payrolls print, which could be the next catalyst for another big market move.
Cyclical Rotation Back In Play?
Weak guidance from Amazon (NASDAQ:) on future sales—after the pandemic buoyed revenue in —disappointed market expectations during the company’s Thursday earnings release, and led to Friday’s -7.56% rout in shares of the internet retail giant.
The mega-cap tech behemoth’s stock proved to be the biggest drag on both the and the indices as the trading week came to a close, with all four major US indices finishing lower.
The plummeted because of another tech giant, Microsoft (NASDAQ:), which is heavily weighted in the 30-component index.
Amazon’s weaker sales forecast echoed the soft guidance presented by Facebook (NASDAQ:) and Apple (NASDAQ:) earlier in the week, bolstering the argument for a cyclical rotation that still hasn’t actually followed through. Still, sectors that rely on an economic recovery outperformed this past week.
jumped 2.8%, besting ’s 1.8% advance. That was followed by which climbed 0.7%. On the opposite side of the equity spectrum, sectors that had benefited from social restrictions lagged: dropped -1.3%, followed by the 0.7% selloff in shares.
As we’ve pointed out, though, another segment of the market has been making a comeback—. outperformed in July, adding 4.3% of value, beating tech stocks by almost 0.50%.
It turns out that Bank of America analysts recommend buying defensive. The lender predicts that mixed policy messages will steer the market into a correction in the second half of the year. What’s interesting about this situation is that defensives do well amid economic contraction—contrary to the Reflation Trade scenario.
Friday’s retreat from another record occurred even as the second-quarter proved to be better than anticipated. Of the 60% of S&P 500 companies that have already reported, more than 80% beat on both sales and profits.
Still, stocks continue hovering near all-time highs, even with the big, marquee names that have led the rallies foreseeing peak sales. The specter of inflation remains an ongoing concern, and investors are justifiably getting nervous.
As valuations get stretched, anxious money managers are likely to keep fidgety fingers on the sell button—for a variety of reasons that extend beyond the virus and inflation: China’s , US-China trade relations to name…