Rotation into value and Energy sets the tone before the bell

Introduction#

According to Monexa AI, the S&P 500 (^SPX) closed Thursday at 6,363.35, a muted +0.07% gain that belied a choppy session dominated by heavy sector rotation. The Nasdaq Composite (^IXIC) added +0.18% to finish at 21,057.96, notching yet another record close, while the Dow Jones Industrial Average (^DJI) retreated -0.70% to 44,693.91 as profit-taking in legacy cyclicals outweighed strength in large-cap tech. Overnight, futures are trading slightly higher—Dow minis up roughly 70 points—after a barrage of earnings releases and a fresh batch of global headlines kept macro risks front-and-center.

Why it matters this morning#

The pattern is clear: money is leaking out of crowded mega-caps and into small-cap, value and factor strategies. ETF inflows hit $645 billion year-to-date, with small-cap factor funds capturing an outsized share, per CNBC’s Worldwide Exchange. That shift dovetails with firmer Energy prices, resurgent silver and gold miners, and a softening dollar—ingredients that tend to accompany the later innings of an economic cycle when inflation proves stubborn.

Market Overview#

Yesterday’s Close Recap#

Momentum cooled on the Dow as steep post-earnings pullbacks in IBM (-7.62%) and HON (-6.18%) erased Tuesday’s cyclical rally. By contrast, cloud-workflow leader NOW jumped +4.16% after delivering above-consensus free-cash-flow margins, underscoring investors’ ongoing willingness to pay for durable topline growth.

Overnight Developments#

Reuters reports that Asia-Pacific equities drifted lower on renewed tariff rhetoric out of Washington, while the euro-zone Stoxx 600 opened roughly flat after July German Ifo sentiment came in below trend. Two headlines stand out:

1. Google inks a zero-emission power deal in Europe. The partnership with Energy Dome bolsters Alphabet’s push toward 24/7 carbon-free energy and could deepen the moat for GOOGL Cloud.
2. Italian major Eni disappoints. E posted a ‑25 % y/y profit slide as lower crude prices countered a strong gas-trading quarter, a reminder that Energy leadership is stock-selective rather than uniform.

Meanwhile, Fed Chair Powell’s on-site clash with President Trump over the central bank’s $3.2 billion renovation (“Fed Mahal?”) reinforced political risk around the Fed’s independence just as expectations for four rate cuts in 2026 begin to fade.

Macro Analysis#

Economic Indicators to Watch#

The immediate catalyst is June durable-goods orders at 08:30 ET. Consensus sits at -0.6% m/m for core orders, but Wells Fargo’s Sameer Samana argues tariffs and wage pressures could keep headline prints hotter for longer. A stronger read would justify the bond market’s recent backup in the two-year yield toward 4.90 %, while a miss could reignite talk of a September cut.

Beyond today, next week’s Employment Cost Index, Wednesday’s advance Q2 GDP and Friday’s PCE deflator will firm up the inflation narrative. Bill Eigen of JPMorgan told CNBC he sees “zero rates not walking through that door,” a view increasingly echoed by corporate treasurers who continue to term-out debt before year-end.

Global & Geopolitical Factors#

Tariff uncertainty is not abating. The U.S.-Japan agreement to cap auto-parts tariffs at 15 % offers nominal relief, yet it coincides with new talk of levies on European chemicals. China, for its part, guided the yuan weaker to blunt the blow, a move that pressures import-heavy U.S. retailers and travel operators.

On energy, Chevron’s partial restart in Venezuela re-anchors 450 kbpd of medium crude into the Atlantic basin, potentially steepening the Brent-WTI spread and helping U.S. refiners such as CVX and MPC manage feedstock costs.

Sector Analysis#

¹ The closing-bell sector feed shows Basic Materials up +0.84%, yet Monexa’s heat-map flagged a broad -1.69% decline led by DOW (-17.45%) and LYB (-9.70%). We give greater weight to the constituent-level data, indicating downside pressure is more acute than the headline suggests.

Reading the tape#

Energy retained leadership thanks to land-rights name TPL (+4.10%) and natural-gas producer EQT (+3.98%). Refiners lagged, however, with VLO (-4.88%) and MPC (-3.51%) reacting to a steeper heavy-crude discount.

Technology is becoming a two-tier market: cloud software and niche AI infrastructure names are in favour, while legacy chip makers and enterprise hardware lag. The 7 % plunge in ON and IBM’s post-earnings hangover hint at multiple compression for lower-growth franchises.

Consumer Cyclicals suffered the worst drawdown. Restaurant bell-wether CMG collapsed ‑13.34 % after flagging labour-cost creep, and EV heavyweight TSLA slid ‑8.20 % even before Monday’s anticipated Cybertruck delivery update. The combination exposes discretionary spending sensitivity in a higher-for-longer rate regime.

Company-Specific Insights#

Earnings and Key Movers#

Early prints:

• LEA delivered Q2 EPS of $3.23 on revenue of $5.93 billion, both fractionally ahead of consensus. Management’s commentary centred on tariff recoveries and supply-chain localization in North America. The stock fell ‑0.60 % into the print but indications suggest a modest bid as investors digest the 12.19x forward P/E versus historical mid-teens.
• CRI posted stabilising direct-to-consumer comps across the U.S., Canada and Mexico, but overall EPS of $0.43 met expectations. Net debt of 2.1× EBITDA leaves the baby-apparel giant sensitive to credit-spread widening.
• Cable operator CHTR missed profit forecasts, sending the stock ‑4.55 % lower pre-market as video-subscriber attrition offset broadband additions.

On deck:

• SO reports after the bell; Zacks sees EPS down y/y at $0.98 amid cooler weather and nuclear-build cost overhangs. Yet leadership changes in finance and rate-base expansion keep the dividend narrative intact.
• Italian oil major E trades lower after a 25 % drop in Q2 profit. Watch for commentary on LNG contract repricing, which could have knock-on effects for U.S. exporters.
• Luxury bell-wether LVMUY extended its decline overnight as fashion and leather goods sales slipped 9 %. Management’s emphasis on U.S. tariff risk underscores why Basic Materials and discretionary luxury remain tactical shorts.

Notable Movers Outside the Earnings Cycle#

• NDAQ surged +5.91 % after unveiling AI-enhanced trade-surveillance tools; that gain helped Financials close only ‑0.55 %.
• AMD rallied +2.19 % ahead of its Aug 5 report. Options-implied move sits at 9 %, but the stock’s 78 % three-month run leaves little margin for error.
• WST spiked +22.78 % on FDA clearance of its next-gen polymer vial, a shot in the arm for Healthcare equipment after MOH’s ‑16.84 % capitulation.

Extended Analysis#

Tariffs & Inflation — twin headwinds. Markets continue to mis-price the interaction between tariffs and sticky core inflation. Wells Fargo’s Samana warns that wage growth and import levies could keep PCE core above 3 % into early 2026. For equities, that spells margin compression in price-sensitive verticals (apparel, basic chemicals) but supports select Energy and Materials where cost pass-through is stronger.

Factor rotation to stay. ETF flows suggest a durable pivot into small-cap value. The Russell 2000’s volatility index (^RVX) is at 22.85, well below its 50-day average of 23.41, implying investors are paying up for upside gamma in smaller names. Expect that bid to extend into high-quality regional banks such as BSVN once net-interest-margin guidance stabilises.

Income proxy demand is rising. Dividend seekers are loading up on high-yield real-estate and covered-call ETFs. Yet yesterday’s pullback in staple heavyweights PM (-2.18 %) and EL (-3.24 %) shows that yield alone is not enough—pricing power remains king.

Commodities back in play. Silver miner PAAS, up 2.48 % in July despite yesterday’s ‑0.95 % drip, sports a Piotroski score of 8 and a Street target implying 56 % upside. Its out-performance versus gold majors underscores the inflation-hedge argument gaining traction in precious metals.

Conclusion#

Morning Recap & Outlook#

Equity futures point to a quiet but constructive open, with Energy leadership intact and tech valuations wobbling at the edges. Durable-goods data at 08:30 ET and ECI/GDP/PCE prints next week will test the market’s newer consensus: a slower glide-path for policy easing amid tariff-fuelled inflation.

Key catalysts to monitor today:

1. June durable-goods orders — a beat re-prices the front end of the curve and pressures rate-sensitive defensives.
2. Earnings from SO and E — will Energy’s leadership broaden or narrow?
3. Any headline on U.S.–EU tariff negotiations — potential swing factor for Basic Materials and Industrials.

A tactical tilt toward high-quality value—think NDAQ, URI, and cash-rich silver producers—continues to look prudent, while keeping dry powder for post-earnings dislocations in crowded AI names. Volatility remains subdued but is unlikely to stay pinned if the macro narrative shifts decisively away from imminent rate relief.

Prepared before the opening bell on Friday, 25 July 2025.