Tech corrects

August picked up where a volatile July left off, as tech weakness and a softer-than-expected jobs report conspired to extend the current stock market pullback.

The S&P 500 (SPX) may have enjoyed its best day since February last Wednesday when Fed Chairman Jerome Powell signaled a September rate cut was likely, but bears quickly recaptured the momentum. After a downside reversal on Thursday, the SPX posted its second-biggest down day since March 2023 on Friday, and logged its first three-week losing streak since April:

The headline: Biggest pullback of year for S&P 500, tech index falls into correction.

The fine print: Following sell-offs a week earlier from Alphabet (GOOGL), Microsoft (MSFT), and Tesla (TSLA), Amazon (AMZN) dropped sharply last Friday in the wake of its earnings announcement, while Apple (AAPL) closed only modestly higher. Meta (META) rallied Thursday after posting its results but pulled back Friday, while Nvidia (NVDA) tagged its lowest levels in more than 10 weeks. The Nasdaq 100 (NDX) tech index officially entered correction territory on Friday by closing more than 10% below its July 10 record close.

The move: The 10-year Treasury yield dropped 41 basis points last week—its biggest weekly decline of the year—and closed Friday at an eight-month low of 3.8%.

The numbers: While the Fed and the markets may have expected a soft jobs report, they may have gotten more than they bargained for. The economy created 114,000 jobs (vs. a 185,000 estimate) and the unemployment rate rose to 4.3% (vs. a 4.1% estimate).

The scorecard: As challenging as last week was for tech, the Russell 2000 (RUT) small cap index fell more than it has in any week since March 2023, giving back more than half of its year-to-date gain:

Sector returns: The strongest S&P 500 sectors last week were utilities (+4.3%), real estate (+2.8%), and communication services (+1.2%). The weakest sectors were consumer discretionary (-4.3%), tech (-4.1%), and energy (-3.7%).

Stock movers: Powell Industries (POWL) +38% to $183.63 on Wednesday, Omnicell (OMCL) +33% to $38.85 on Thursday. On the downside, Bandwidth (BAND) -30% to $15.97 on Thursday, Tutor Perini (TPC) -27% to $17.36 on Friday.

Futures: Despite jumping 5.1% last Wednesday on geopolitical uncertainties—the market’s biggest one-day gain since last October—September WTI crude oil (CLU4) pulled back to end the week down $3.64 at $73.52. December gold (GCZ4) closed Friday at $2,469.80, up nearly $42 for the week. Week’s biggest gains: August VIX (VXQ4) +35.1%, September Ultra T-bond (UBU4) +6.1%. Week’s biggest declines: August ether (ETHQ4) -8.5%, August bitcoin (BTCQ4) -8.5%.

This is just a sample of the more than 1,500 companies scheduled to announce earnings this week:

●Monday: Axsome Therapeutics (AXSM), BioNTech (BNTX), Tyson Foods (TSN), Crispr Therapeutics (CRSP), CSX (CSX), Hims & Hers Health (HIMS)
●Tuesday: Baxter (BAX), Caterpillar (CAT), Hyatt Hotels (H), Molson Coors (TAP), Uber (UBER), Vulcan Materials (VMC), Yum Brands (YUM), Airbnb (ABNB), Amgen (AMGN), Cirrus Logic (CRUS), Devon Energy (DVN), Reddit (RDDT)
●Wednesday: Disney (DIS), Global Payments (GPN), Lyft (LYFT), Novo-Nordisk (NVO), Ralph Lauren Corp (RL), Rockwell Automation (ROK), Shopify (SHOP), AppLovin (APP), Duolingo (DUOL), Root (ROOT), Wynn Resorts (WYNN)
●Thursday: Datadog (DDOG), Eli Lilly (LLY), Martin Marietta (MLM), Nova (NVMI), Spectrum Brands (SPB), Dropbox (DBX), DigitalOcean (DOCN), E.L.F Beauty (ELF), Five9 (FIVN), Gilead Sciences (GILD)
●Friday: Ideaya Biosciences (IDYA), Disc Medicine (IRON)

This week’s numbers include:

●Monday: S&P Global Services PMI, ISM Services Index
●Tuesday: trade deficit
●Wednesday: consumer credit
●Thursday: weekly jobless claims, wholesale inventories

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

The following table shows how the NDX traded after the other times since 1990 it closed in correction territory (10% below a previous high close) following a record high close:¹ its returns five, 10, and 20 trading days later, how much more it fell after the correction started, and how long it took to reach that correction low:

Although there were nine corrections that ended the same day they started, the NDX continued to fall in the other 16 cases (an additional median decline of 6.1%), and it took anywhere from four to 631 trading days to reach the move’s eventual low. The median wait was 42 trading days, or roughly two months.

But the table also shows it was fairly common for the NDX to stage a short-term bounce after entering a correction, even if the move ultimately deepened. For example, five trading days after a correction started, the index was higher 21 of 25 times, with a 2.8% median return.

Finally, it may be worth noting that the three-deepest corrections occurred after the NDX had a negative five-day return after first entering correction territory.

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¹ All figures reflect Nasdaq 100 (NDX) daily closing prices, 1985-2024. In all instances, “days” refers to the number of trading days, not calendar days. Declines of 10% or more from a previous close were considered “corrections” only if they occurred after the index traded above the high close that preceded the previous correction. Supporting document available upon request.