The price of US stock indices continued to fall on Wednesday, ahead of Thursday’s GDP data.
SP500 – Weekly Chart
SP500 is set to test the uptrend channel resistance that has been in play since mid-June. That will be a significant barrier to prevent a further correction to the 5,330 or 5,194 level.
Stocks were lower after disappointing earnings reports late Tuesday from Tesla and Alphabet. Both companies raised the alarm bell about profit margins in the most recent report. Tesla’s price cuts and incentives strategy in a challenging and slowing market led to automotive gross margins of 14.6% for the second quarter, missing analysts’ estimates of 16.29%.
Investors may be taking profits ahead of other significant tech company earnings next week from Microsoft, Meta, Apple, Amazon, and Nvidia.
“Until Tesla is able to begin production of new lower-cost models, which the company expects in H1 2025, we believe pricing/incentives could remain a key demand lever and weigh on margins,” Goldman Sachs analysts said in a note.
Alphabet also raised margin concerns after saying that AI-based spending was set to rise this year as the company tests new products.
Markets are now looking ahead to Thursday’s GDP report and Friday’s PCE deflator report for an update on when inflation may have fallen enough to allow the Fed to cut interest rates. The PCE deflator is the Federal Reserve’s preferred inflation measure, with analysts expecting a move to 2.4% year-over-year, down from 2.6%. The GDP figure is expected to rise to 2% annually for Q2, up from 1.4%.
The markets are discounting the chance of a 25 basis point rate cut at 7% for next week’s FOMC meeting on July 30-31 but a 100% chance for the following meeting on September 17-18.
This week’s data will be necessary to support those expectations, and higher GDP and inflation would add to a stock correction ahead of next week’s big earnings releases.
