Wall Street Set To End Week On Subdued Note As CrowdStrike, Microsoft Drop Amid Global Outage: Analyst Sees 10% Upside Potential For S&P 500 Over Next 12 Months

U.S. stocks are gearing up for a nervy as index futures were seen hugging the flat line. Uncertainty, which is one of the biggest enemies of the market, has intensified on all fronts. The Federal Reserve hasn’t committed to a timeframe for starting rate cuts despite the recent soft growth data and slowing inflationary measures. Things look murky on the geopolitical front. President Joe Biden‘s fate is unknown yet as the calls for him to step down intensify.

And the Republican presidential candidate Donald Trump’s extreme right-wing agenda has kept traders on the tenterhook. On top of these, both candidates have talked tough regarding their stances on China.

The tech sector could react to a massive service outage reported by Microsoft Corp. MSFT that disrupted operations of banks, airlines, broadcasters, stock exchanges, among others worldwide, and Netflix, Inc.’s NFLX earnings

San Francisco Fed President Mary Daly, who spoke after the market close on Thursday, chose to tread a cautious line. While acknowledging that recent inflation is encouraging, she said “We’re not there yet.” A couple of more Fed officials will speak on Thursday before the Fed blackout period starts.

Cues From Last Session:

U.S. stocks closed notably lower on Thursday as the downward momentum carried over into the session amid the release of mixed economic data and fairly dovish comments from Chicago Fed President Austan Goolsbee. Weekly jobless claims rose much more than expected, while regional manufacturing activity accelerated more than expected in July and the Conference Board’s leading economic index fell by less than expected in June.

The major indices opened mixed but turned uniformly higher in early trading as traders made sense of the economic data. Subsequently, selling pressure set in, sending the averages steadily lower. The Dow Industrials snapped a six-session winning streak, while the S&P 500 and Dow Industrials ended at their lowest levels in nearly three weeks.

The sell-off was nearly broad based with only energy stocks bucking the downtrend. Healthcare, financial, consumer discretionary and material stocks bore much of the brunt of the sell-off.

In premarket trading on Friday, the SPDR S&P 500 ETF Trust SPY rose 0.04% to $552.89, while the Invesco QQQ ETF QQQ eased 0.03% to $479.34, according to Benzinga Pro data.

Insights From Analysts:

Despite the recent tech-led sell-off, a strategist is optimistic about the way forward for the market. “The summer rally that we've got in 2024 has gotten healthier. We like the participation at the index level, also at the stock level,” BofA Technical Strategist Stephen Suttmeier said in a CNBC interview.

After the Nasdaq 100, the S&P 500 rose to a new high, and earlier this week the S&P Equal-Weighted Index and the Dow Industrials followed them to new peaks, he said. The Russell 2,000 Index also broke out from a two to three-year base, he added.

“So a lot of improvement, more participation tends to be healthier for the market,” the strategist said.

Suttmeier said the S&P 500 hit the 5,600 target BofA’s had for the summer rally and he sees the scope for the index climbing further to 6,150, probably within the next you know 12 months or so.

Ryan Detrick of Carson Group highlighted one positive among the recent downtrend. The S&P 500 is on the longest streak since the Great Financial Crisis without a 2% drop. “Past few days have definitely added some more volatility but not long enough to end this streak just yet,” he said.

Upcoming Economic Data:

• New York Fed President John Williams will speak at 10:40 a.m. EDT followed by Atlanta Fed President Raphael Bostic at 1 p.m. EDT.

See Also: How to Trade Futures

Stocks In Focus:

• Netflix fell 1.25% in premarket trading following the streaming giant’s quarterly earnings announcement, while Intuitive Surgical, Inc. ISRG climbed over 6.5% on earnings.
• American Express Company AXP, Halliburton Company HAL, Schlumberger Limited SLB and Travelers Companies, Inc. TRV are among the key companies due to release their quarterly results ahead of the market open.
• SunPower Corporation SPWR plunged by over 16.5% after the company announced the halting of some operations.
• Plug Power Inc. PLUG slumped about 11% following the company’s plan to sell shares.
• CrowdStrike Holdings, Inc. CRWD plummeted about 14% and Microsoft dropped about 2% on the latter’s service outage. A defect in a single content update for Windows hosts made by cybersecurity company CrowdStrike is said to have caused the outage.

Commodities, Bonds And Global Equity Markets:

Crude oil futures fell for a second straight day, dropping toward the $81-a-barrel mark while gold futures fell sharp as they look to extend their two-day losing streak. The 10-year Treasury yield climbed 6.7 points to 4.215% after spiking over 1% on Thursday. Bitcoin BTC/USD fell toward the $64K level.

Asian stocks closed mostly lower, dragged by Wall Street’s negative lead, but the Chinese and Malaysian markets bucked the downtrend. The modest strength in Chinese stocks came after a meeting of the Chinese Communist Party's Central Committee that ended Thursday and passed a resolution on “deepening reform” to “advance Chinese modernization.”

The European markets traded in the red in the early hours.

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Photo by Jirapong Manustrong on Shutterstock