The upcoming trading week will be marked by political volatility following an assassination attempt on President Trump, potential market rallies, and significant earnings reports, particularly from small-cap stocks and major companies like Netflix.
The shocking assassination attempt on President Trump over the weekend has catapulted his poll numbers, making him the leading candidate for the November election.
Jay Woods, chief global strategist at Freedom Capital Markets (NASDAQ:FRHC), expects the event to influence market behavior, potentially triggering a "Trump bump" at Monday's open, with increased volatility throughout the week due to heightened political rhetoric as the Republican Convention approaches.
“Overall, the market will get back to focusing on earnings and Fed policy,” Woods writes in his weekly newsletter, noting the market is entering a seasonally weak period.
A key story to watch is the rotation from large-cap to small-cap stocks, highlighted by last Thursday's significant market breadth, where the Russell 2000 surged 3.6% while the Nasdaq 100 fell 2.2%.
Investors will be keen to see if this marks the start of a sustained broadening of market participation or a reaction to positive inflation data and a rally in small caps.
The Russell 2000, after a period of stagnation, is making a comeback, reminiscent of its 27% jump over 10 weeks last year. Anticipation of Federal Reserve rate cuts is fueling this rally, with a potential September cut being the most likely scenario.
“This is the move many of us have been waiting for all year,” Woods writes. “The Russell 2000 is finally trying to join the party and when they join a party they tend to make some major noise.”
Additionally, earnings season heats up with major banks and high-profile companies like Netflix reporting. Netflix shares, known for their volatility around earnings, could see significant moves, with support and resistance levels closely watched.