The Bottom Line:
- Tech-led rally on the NASDAQ, up 2.6%, fueled by AI optimism and Fed’s rate cut signals
- S&P 500 closed above key levels, including the 50-day line and 5,500 resistance
- Russell 2000 saw volatility, but ended the month up 10.4%
- Breadth indicators like RSP and QQQ showed strength in the market
- Arista Networks surged 11.3% on strong earnings, positioning it as an actionable AI play
Tech-Led Rally on the NASDAQ
Nasdaq Leads the Charge on AI Optimism and Rate Cut Signals
The Nasdaq surged 2.6% by the close of the session, fueled by optimism surrounding AI and signals from the Fed about potential rate cuts. The tech-heavy index managed to close just above its key 50-day moving average, a positive sign for investors. The rally was initially sparked by AI-related news from Microsoft and AMD, although these stocks didn’t lead the gains. Later in the day, Fed Chief Powell’s comments about a possible rate cut as early as September further boosted market sentiment, despite some concerns about the FOMC statement lacking explicit mentions of rate cuts.
S&P 500 Finds Support and Breaks Key Levels
The S&P 500 also had a strong showing, gaining 1.6% and closing above several important levels. The index found support at its 50-day moving average and quickly recovered, surpassing its 21-day line and the 4,500 level, which had previously acted as resistance. While the Nasdaq has yet to clear its 21-day line, the S&P 500’s performance is encouraging for investors. The positive action in both the Nasdaq and S&P 500 was particularly noteworthy, as these were the indexes where investors hoped to see strength.
Russell 2000 and Dow Jones Industrial Average Performance
The Russell 2000, which tracks small-cap stocks, gained about 0.9% by the close but came off its highs. On a monthly basis, the Russell 2000 had a decisive breakout, rising 10.4% in July. The Dow Jones Industrial Average, meanwhile, rose a more modest 0.4% on the day and also retreated from its intraday highs. Looking at the broader market, the equal-weighted S&P 500 (RSP) and the equal-weighted Nasdaq 100 (QQEW) both showed positive breadth, although they gave up some gains towards the end of the session. The 10-year Treasury yield (TNX) fell to nearly five-month lows, providing a tailwind for the market and contributing to the strong performance of small-cap stocks.
S&P 500 Closes Above Key Levels
Nasdaq Leads the Charge on AI Optimism and Rate Cut Signals
The Nasdaq surged 2.6% by the close of the session, fueled by optimism surrounding AI and signals from the Fed about potential rate cuts. The tech-heavy index managed to close just above its key 50-day moving average, a positive sign for investors. The rally was initially sparked by AI-related news from Microsoft and AMD, although these stocks didn’t lead the gains. Later in the day, Fed Chief Powell’s comments about a possible rate cut as early as September further boosted market sentiment, despite some concerns about the FOMC statement lacking explicit mentions of rate cuts.
S&P 500 Finds Support and Breaks Key Levels
The S&P 500 also had a strong showing, gaining 1.6% and closing above several important levels. The index found support at its 50-day moving average and quickly recovered, surpassing its 21-day line and the 4,500 level, which had previously acted as resistance. While the Nasdaq has yet to clear its 21-day line, the S&P 500’s performance is encouraging for investors. The positive action in both the Nasdaq and S&P 500 was particularly noteworthy, as these were the indexes where investors hoped to see strength.
Mixed Performance in Other Indexes and Treasury Yields
The Russell 2000, which tracks small-cap stocks, gained about 0.9% by the close but came off its highs. On a monthly basis, the Russell 2000 had a decisive breakout, rising 10.4% in July. The Dow Jones Industrial Average, meanwhile, rose a more modest 0.4% on the day and also retreated from its intraday highs. Looking at the broader market, the equal-weighted S&P 500 (RSP) and the equal-weighted Nasdaq 100 (QQEW) both showed positive breadth, although they gave up some gains towards the end of the session. The 10-year Treasury yield (TNX) fell to nearly five-month lows, providing a tailwind for the market and contributing to the strong performance of small-cap stocks.
Russell 2000 Sees Volatility but Ends Month Strong
Small-Cap Index Shows Volatility but Finishes July Strong
The Russell 2000, which tracks small-cap stocks, experienced some volatility during the last trading session of July. While the index gained about 0.9% by the close, it came off its intraday highs. The Russell 2000’s performance was less impressive compared to the tech-heavy Nasdaq and the broader S&P 500, which both saw more substantial gains. However, on a monthly basis, the Russell 2000 had a decisive breakout, rising an impressive 10.4% in July.
Equal-Weighted Indexes Reflect Positive Breadth
Looking at the broader market, the equal-weighted S&P 500 (RSP) and the equal-weighted Nasdaq 100 (QQEW) both showed positive breadth, indicating that the rally was not limited to just a few large-cap stocks. However, these indexes also gave up some gains towards the end of the session, mirroring the behavior of the Russell 2000. Despite the late-day pullback, the overall positive breadth suggests that the market rally had a relatively broad base of support.
Falling Treasury Yields Provide Tailwind for Small-Caps
The 10-year Treasury yield (TNX) fell to nearly five-month lows during the trading session, providing a tailwind for the market and contributing to the strong performance of small-cap stocks. Lower interest rates can be particularly beneficial for small-cap companies, as they often rely more heavily on borrowing to finance their growth. The decline in Treasury yields, coupled with the Fed’s signals about potential rate cuts, likely contributed to the Russell 2000’s strong monthly performance, despite the volatility seen during the last trading session of July.
Breadth Indicators Show Market Strength
Equal-Weighted Indexes Reflect Market Strength
The equal-weighted S&P 500 (RSP) and the equal-weighted Nasdaq 100 (QQEW) provided insight into the broader market’s performance. RSP hit a record high during the session, demonstrating the strength of the rally across a wide range of stocks. Although it gave up some gains by the close, the overall trend remained positive. Similarly, QQEW gained 1.77% on the day, despite facing resistance at the converging 50-day and 21-day moving averages.
Mega-Cap Tech Outperforms Broader Nasdaq
While the equal-weighted Nasdaq 100 (QQEW) posted solid gains, the market-cap-weighted Nasdaq 100 (QQQ) surged nearly 3% on the day, indicating that mega-cap tech stocks were leading the charge. This outperformance suggests that the rally was particularly strong among the largest technology companies, which have a more significant influence on the market-cap-weighted index.
Indexes Poised for Further Gains
Despite the impressive performance of the equal-weighted indexes, neither RSP nor QQEW managed to close above their respective 50-day moving averages. However, this may present an opportunity for further gains in the coming weeks. If these indexes can build on the current momentum and break above key resistance levels, it could signal a more sustained rally in the broader market. Investors will be closely monitoring the performance of these indexes in the near term to gauge the overall health of the market.
Arista Networks Surges on Strong Earnings, Positioning as AI Play
Arista Networks Surges on Strong Earnings
Arista Networks (ANET) reported impressive earnings results, with 16% top-line growth and 33% bottom-line growth. The company’s strong performance led to an 11.3% surge in its stock price on above-average volume. The earnings report, coupled with the stock’s position above its 50-day moving average, presents a potential entry point for aggressive investors.
Benefiting from Microsoft’s Capex and AI Hardware Demand
Arista Networks is well-positioned to benefit from Microsoft’s capital expenditure, which likely fueled the company’s strong earnings. As an AI hardware play, Arista Networks stands out among its peers, many of which are still trying to break above their 50-day moving averages. The company’s robust fundamentals and technical action make it an attractive option for investors looking to capitalize on the growing demand for AI hardware.
Positive Reaction to Earnings Warrants Monitoring
While some traders may have been hesitant to take a position in Arista Networks immediately following the earnings report, the positive reaction to the company’s results warrants close monitoring. If the stock can hold its gains and consolidate in a tight range, it may offer a new entry point for investors. As more earnings reports and headlines emerge in the coming weeks, it will be crucial to assess how Arista Networks navigates the evolving market landscape.
