The market is currently in a phase of consolidation and profit-taking after recent peaks. Investors are shifting their gaze from large-cap tech giants to smaller, cyclical companies. This pivot is partly driven by the increasing odds of a Donald Trump presidential win, which could benefit sectors with high exposure to the US.

As the second-quarter earnings season gets underway, Wall Street is pumped up by signals converging on the Fed's first rate cuts in September. As usual, this movement is irrigating the major indices, but also the smaller ones, which have been largely neglected for months. The Russell 2000, the index best known in the US for tracking less capitalized stocks, has just jumped 12% in one month. It's another sign that investors are willing to take risks: you don't venture into such issues when confidence isn't there.

Earnings reports are now the new focal point for market movers. Heavyweights like Johnson & Johnson, Elevance Health, Netflix, Abbott Laboratories, Intuitive Surgical, Marsh & McLennan, and American Express are set to release their numbers before the week is out. Investors are also keeping a close eye on upcoming economic indicators, including June housing starts, industrial production figures, and the Federal Reserve's Beige Book. Additionally, comments from Fed officials Thomas Barkin and Christopher Waller are on the radar.

Wall Street's strong momentum contrasts with the opposite shore of the Atlantic. Most European markets were down yesterday, with the anecdotal exception of Sweden's OMX, saved by Ericsson and Enskilda Banken. Paris experienced a second session in the red, taking the CAC40 back to its July 10 level. The mood is gloomy on the French stock market, which is paying for the poor performance of its luxury sector. This time, it's not just political turmoil that's to blame. It's the continuing fears about the dynamics of the Chinese economy that are taking their toll. The major consumer discretionary groups that have warned that their targets will be missed have all pointed the finger at China. They include Burberry, Hugo Boss, Swatch and Daimler Truck.

China's influence can be seen in other areas of the financial markets. Commodities, for example, fell due to the multiplying signs of weak economic activity in the Asian giant. Yesterday, Bank of America published a note on the pressure on industrial metals prices due to the barriers erected by Brussels and Washington against Chinese electric vehicles (all of which are down over two months). “With the decarbonization of the global economy, EVs are the second most important structural driver of metals demand, after renewable energies”, the investment bank reminds us, before adding that the utilization rate of Chinese automotive production capacity is currently only 65%, a sign that overcapacity is enormous. Staying with the theme of China's non-recovery, Bloomberg revealed this morning that Washington intends to strengthen its measures to prevent Beijing from gaining access to the most advanced semiconductor technologies. The Biden administration is seeking to increase pressure on non-American suppliers to align themselves with the strictest doctrine in the field. This is bad news for players like ASML and Tokyo Electron, but above all for China's accelerating economy.

In the Asia-Pacific region, the semiconductor industry is dragging down the indices, for the reasons mentioned above. Japan's Nikkei 225 lost 0.4% at the end of the day. Korea's KOSPI is down 0.8%. Taiwan is paying a heavy price for TSMC's decline, with TAIEX down 1.2%. The downturn was exacerbated by Donald Trump's statements in an interview with Bloomberg. The Republican candidate felt that Taiwan should pay the United States for its military protection, while insisting that the island had “stolen” American chip business. In Australia, the ASX rebounded by 0.7% on the back of financial stocks. Europe’s main indices are mostly bearish. Futures on the Nasdaq 100 were down 1.5% in premarket trading, the S&P 500 fell by 1.1% and the Dow Jones by 0.3%.

Today’s economic highlights:

Consumer price indices in the UK and the eurozone Later, US building permits and housing starts, capacity utilization and general industrial production, as well as crude oil inventories according to the DOE are on the agenda.

The dollar is down 0.4% against the euro and the pound to EUR 0.9139 and GBP 0.7673. The ounce of gold is trading at USD 2,474. Oil retreats, with North Sea Brent at USD 84.27 a barrel and US light crude WTI at USD 80.56. The yield on 10-year US debt falls to 4.18%. Bitcoin is trading at USD 65,600.

In corporate news:

  • Johnson & Johnson beat estimates for second-quarter profit and revenue on Wednesday, driven by strong sales of its drugs, including cancer treatment Darzalex and blockbuster psoriasis drug Stelara.
  • The Biden administration is weighing more stringent export controls on Semi-Conductors to China, causing pre-opening jitters in the sector and leading to a decline in shares of Nvidia and Super Micro by 2.8%, AMD by 2.5%, Qualcomm by 2.3%, Micron by 2.9%, Applied Materials by 3.3%, and Intel by 0.4%.
  • Discover Financial Services, United Airlines, Johnson & Johnson, and US Bancorp are all slated to release their financial results today.
  • GitLab is reportedly exploring a sale, with the company's stock surging 12.9% prior to the market opening.
  • Delta Air Lines' credit rating has been upgraded to investment grade by Fitch Ratings, acknowledging the improvement in the company's balance sheet over the past three years.
  • Alphabet's subsidiary Google has won a legal victory with the dismissal of a proposed class action in a Californian federal court regarding the alleged restrictive use of its mapping products.
  • Spirit Airlines has warned that its second-quarter sales are expected to be around $1.28 billion, lower than initially projected, due to a decline in non-ticket revenue, causing a 5.7% drop in its shares in pre-market trading.
  • Omnicom has outperformed Wall Street's second-quarter earnings and revenue estimates, primarily due to robust growth in advertising and media, although its shares fell by 2.9% before the market opened.
  • JB Hunt Transport Services reported a 24% decrease in second-quarter earnings, attributing the downturn to continued challenges in its transport business, with its stock declining 2% in pre-market trading.
  • Eli Lilly's shares dipped 3% in pre-market trading following news that competitor Roche's obesity drug candidate showed promising trial results.
  • Five Below experienced a 14.6% pre-market trading drop after announcing the upcoming departure of its CEO Joel Anderson and projecting second-quarter sales below previous estimates.
  • Aehr Test Systems saw its shares climb 11.4% before the opening bell after reporting a significant increase in adjusted quarterly earnings year-over-year.
  • V.F. Corp has agreed to sell its Supreme brand to EssilorLuxottica for $1.5 billion in cash.
  • Gates Industrial's shares gained 7% in pre-market trading as the company is set to replace Abercrombie & Fitch in the S&P Smallcap 600 on July 22.

Analyst recommendations:

  • American Airlines Group Inc.: TD Cowen downgrades to hold from buy with a price target cut from USD 16 to USD 10.
  • Centerpoint Energy, Inc.: Morgan Stanley downgrades to equal weight from overweight with a target price decrease from USD 30 to USD 29.
  • Chevron Corporation: Bernstein downgrades to market perform from outperform with a price target reduction from USD 183 to USD 167.
  • Eagle Materials Inc.: Raymond James downgrades to market perform from outperform.
  • Five Below, Inc.: Truist Securities downgrades to hold from buy with a price target decrease from USD 136 to USD 89.
  • Genpact Limited: JP Morgan downgrades to neutral from underweight with a target price cut from USD 43 to USD 40.
  • Hess Corporation: Bernstein upgrades to outperform from market perform with a price target increase from USD 166 to USD 172.
  • Progressive Corporation: Keefe Bruyette & Woods upgrades to outperform from market perform with a price target increase from USD 210 to USD 245.
  • Solaredge Technologies, Inc.: DZ Bank AG Research downgrades to sell from hold with a price target cut from USD 30 to USD 24.
  • Truist Financial Corporation: Baird downgrades to neutral from outperform with a target price of USD 45.
  • Unitedhealth Group Inc.: Jefferies upgrades to buy from hold with a price target increase from USD 481 to USD 647.
  • Appfolio, Inc.: JP Morgan maintains its overweight rating and raises the target price from USD 260 to USD 328.
  • Arista Networks, Inc.: KeyBanc Capital Markets maintains its overweight recommendation and raises the target price from USD 349 to USD 432.
  • Bank Of America Corporation: Punto Research maintains its buy recommendation and raises the target price from USD 37 to USD 49.
  • Bristol-Myers Squibb Company: TD Cowen maintains its hold recommendation with a price target cut from USD 67 to USD 45.
  • Broadcom Inc.: Cantor Fitzgerald maintains its overweight recommendation and raises the target price from USD 1875 to USD 2000.
  • Chipotle Mexican Grill, Inc.: Barclays maintains its equal weight recommendation and slashes the target price from 2865 to USD 58.
  • Eli Lilly And Company: TD Cowen maintains its buy recommendation and raises the target price from USD 850 to USD 1050.
  • Rivian Automotive, Inc.: Morgan Stanley maintains its overweight recommendation and raises the target price from USD 13 to USD 17.
  • Tesla, Inc.: Barclays maintains its equal weight recommendation and raises the target price from USD 180 to USD 225.
  • United Airlines Holdings, Inc.: TD Cowen maintains its buy recommendation and raises the target price from USD 65 to USD 80.
  • Legal & General Plc: RBC Capital downgrades to sector perform from outperform with a target price cut from GBX 295 to GBX 245.
  • Spirax-Sarco Engineering Plc: HSBC upgrades to hold from reduce with a target price increase from GBP 86 to GBP 87.