Stocks Fall on U.S. Downgrade as a New Month Begins

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Stocks began August to the downside as big earnings passed and Fitch Ratings downgraded the sovereign debt of the United States.

The S&P 500 fell 2.3 percent between Friday, July 28, and Friday, August 4. It was the index’s biggest decline since March, and its first drop in the last four weeks. About three-quarters of its members lost value.

“There has been a steady deterioration in standards of governance over the last 20 years,” Fitch Ratings said as it lowered Washington’s rating from AAA to AA+. It cited the “complex budgeting process” and warned of a potential recession by early next year. The move leaves Moody’s Investors Service as the only agency with a top rating on the country.

Biggest Gainers in the S&P 500 Last Week
Arista Networks (ANET)+19%
Global Payments (GPN)+13%
Warner Bros. Discovery (WBD)+9.2%
Constellation Energy (CEG)+8.6%
Cognizant Technology (CTSH)+8%
Source: TradeStation Data

Yields on 10- and 30-year Treasuries hit their highest levels of the year. Both were climbing before the downgrade and got a further boost after the government announced plans to issue more debt in August and September.

Other headlines reflected potential slowing in the economy. Manufacturing and service data from the Institute for Supply Management missed estimates. Non-farm payrolls increased less than expected, but unemployment fell.

Nasdaq’s Painful Week

The Nasdaq-100 led to the downside, shedding 3 percent. It was the technology-heavy index’s worst week in five months.

Software and IT companies like DXC Technology (DXC), Fortinet (FTNT) and Paycom (PAYC) led the selling after issuing weak guidance. SolarEdge Technologies (SEDG) and Enphase Energy (ENPH) also hit new 52-week lows after forecasting third-quarter revenue under consensus.

Apple (AAPL) fell to levels last seen in the first half of June after matching estimates. The tech giant’s next big catalyst could be the release of new iPhones in early September, based on its historical patterns.

Arista Networks (ANET) and Global Payments (GPN) rose the most in the S&P 500 after their results beat estimates. Constellation Energy (CEG) also benefited from a new power-supply agreement with Microsoft (MSFT), plus strong demand for nuclear power.

Energy was the only positive sector last week. It climbed as tight inventories lifted crude-oil prices. Saudi Arabia also extended 1 million barrels of production cuts and Russia removed 300,000 barrels from the market.

S&P 500, daily chart, with select indicators and patterns.

Charting the Market

Last week’s pullback landed the S&P 500 below the 4528 level where it had bounced the previous week. The index closed below its 21-day exponential moving average (EMA), which had provided support since late-May. The moving average convergence/divergence (MACD) oscillator also turned negative. Those signals could make some chart watchers think the short-term uptrend that started in early June has ended.

Traders expecting more of a pullback may target the late-June high around 4450 and the rising 50-day moving average.

Attention may also focus on Treasury yields after last week’s jump, with breakouts to new highs potentially weighing on stocks.

The Week Ahead

Biggest Decliners in the S&P 500 Last Week
DXC Technology (DXC)-30%
Fortinet (FTNT)-26%
Generac (GNRC)-24%
SolarEdge Technologies (SEDG)-23%
Paycom (PAYC)-21%
Source: TradeStation Data

Treasuries could be especially important this week because key inflation numbers are due on Thursday morning.

Today’s big events are earnings from Palantir (PLTR), Tyson Foods (TSN), Lucid Motors (LCID) and Beyond Meat (BYND).

United Parcel Service (UPS) and Rivian Automotive (RIVN) announce results tomorrow.

Crude-oil inventories are due Wednesday, plus earnings from Walt Disney (DIS) and Roblox (RBLX).

Thursday’s the busiest day of the week. The key consumer price index (CPI) inflation report is scheduled for 8:30 a.m. ET, along with initial jobless claims and Alibaba (BABA) earnings.

Friday morning brings the producer price index (PPI) and consumer sentiment.

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