Introduction
U.S. stock futures have made a partial recovery from last week’s losses as the earnings season continues to unfold. Investors are closely monitoring the performance of stock-index futures as the market looks for signs of stability.
Stock Futures Trading Update
- S&P 500 futures (ES00) rose by 20 points or 0.4%, reaching 4518.
- Dow Jones Industrial Average futures (YM00) gained 123 points or 0.3%, reaching 35276.
- Nasdaq 100 futures (NQ00) advanced by 85 points or 0.6%, reaching 15439.
Last Week’s Performance
Last week was challenging for the market, with the Dow Jones Industrial Average falling by 150 points or 0.43% to reach 35066. The S&P 500 also declined by 24 points or 0.53% to reach 4478, and the Nasdaq Composite dropped by 50 points or 0.36% to reach 13909.
Market Outlook
Buyers have started to regain control in the early trading session on Monday, seeking to reverse the downward trend that caused the S&P 500 to experience a significant decline of 2.3% last week, marking its largest weekly drop since March.
The strong bullish run that had propelled the Wall Street benchmark to 16-month highs came to a halt due to concerns about elevated Treasury issuance, leading to higher bond yields and mixed corporate earnings reports.
Impact of Rising Bond Yields
Analysts have pointed out that the surge in bond yields, with the 10-year Treasury yield reaching 4.2% for the first time since November, has made stocks appear less attractive. The expected earnings yield of the S&P 500 now only holds a difference of around 1% compared to the yield on the 10-year Treasury bond. Such levels have not been witnessed since the tech bubble burst in 2002.
Stephen Innes, managing partner at SPI Asset Management, highlights the importance of considering the current yield environment. Although high valuations alone may not necessarily cause issues, the current landscape suggests that things may be becoming a bit expensive.
Potential Impact of U.S. CPI Numbers
Investors will closely monitor U.S. yields, as any further rise could potentially harm global stocks. The upcoming release of this week’s U.S. CPI numbers will be particularly significant in determining the market’s trajectory.
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CPI Report and Economic Data
The eagerly anticipated CPI report is set to be published on Thursday. In addition to this, there are some other key economic data releases scheduled for Monday. At 3 p.m. Eastern, the consumer credit report for June will be made available.
Second Quarter Earnings Season
The second quarter earnings season is well underway, with several major companies reporting their results on Monday. Among them are Tyson Foods, Paramount Global, and KKR. Investors will be closely watching these reports for insights into the company’s performance.
Earnings Expectations
Despite high hopes, earnings have not provided the market with the expected support. As of now, 84% of the companies in the S&P 500 have released their second-quarter earnings. Out of these, an impressive 79% have reported actual earnings per share above the mean EPS estimate. This figure surpasses both the 5-year average of 77% and the 10-year average of 73%, according to FactSet.
However, it’s worth noting that even though companies with positive earnings surprises have outperformed expectations, their stock prices have actually experienced an average decrease of 0.5% two days before and two days after the earnings release. This is significantly below the 5-year average price increase of 1.0% for companies reporting positive earnings surprises.
John Butters, senior earnings analyst at FactSet, states that if the current percentage holds true for the entire quarter, it would mark the largest average negative price reaction to positive EPS surprises reported by S&P 500 companies since Q2 2011.
Technical Analysis and Support Levels
Jonathan Krinsky, a strategist at BTIG, highlights some key technical aspects of the market. After a recent decline, the S&P 500 is now poised to test important support levels.
The first support level is the rising 50-day moving average, which currently sits at 4406. However, even more significant support is expected to come in the range of 4200-4300. A potential test of 4200 would equate to a decline of approximately 9% from the recent highs. Despite this potential pullback, many analysts believe that the current uptrend will resume later in the year.
It remains to be seen how these economic reports and earnings releases will impact the overall market sentiment and investor behavior going forward.
