U.S. stock futures traded near the flat line Monday night as investors await a flood of corporate earnings reports.
Dow Jones Industrial Average futures fell by 7 points, or 0.02%. Futures linked to the S&P 500 and Nasdaq 100 futures both climbed 0.02%.
The major indexes all ended Monday’s main trading session modestly higher. The Dow rose 0.28%, while the S&P 500 and the Nasdaq Composite edged up 0.15% and 0.21%, respectively. In July, the S&P 500 and the Dow each gained more than 3%, while the tech-heavy Nasdaq advanced about 4.1%.
More than 160 S&P 500 constituents are slated to report their latest quarterly results this week. More than half of the companies in the broad market index have already reported, with 80% posting earnings beats, according to FactSet. This further raises hopes that the economy will be able to avoid a recession as inflation begins to show signs of slowing.
To be sure, Globalt Investments senior portfolio manager Keith Buchanan noted that expectations coming into this season were negative.
“We beat that bar, but still, thus far [there have] been indications that we’re going to end up in a negative year-over-year growth from an earnings standpoint,” said Buchanan. “But we’re more concerned and frankly, somewhat optimistic about the earnings picture for the second half of this year, in particular 2024.”
He added that signs of a widening market rally have emerged in the past month.
“As this market continues to kind of turn higher, we’re expecting a broader participation with small cap participating, [with] some spaces of the value cohort participating as well,” Buchanan added.
Pharmaceutical giants Merck and Pfizer will be posting their results Tuesday morning. Investors will also be keeping an eye on Caterpillar and Uber’s quarterly earnings reports. Economic indicators, including job openings and labour turnover numbers from June and the July manufacturing purchasing managers’ index will also be released Tuesday.
Dollar’s 2.3% rally since mid-July another headwind to stock market outperformance
The dollar has climbed 2.3% since bottoming in mid-July, presenting another headwind to continued equity market strength.
“We don’t see the dollar weakening further until we get clear signs of improvement in the global growth outlook, with the greenback more prone to a short-term rebound in our view,” Barclays equity strategist Venu Krishna wrote on Monday.
The dollar’s weakness over the past year has proven a tailwind to U.S. corporate profits of those companies with a high degree of international sales. Higher overseas sales denominated in euros or yen translate into more dollars when the dollar is weak, and fewer dollars when the currency is strong.
But now, disinflation in the U.S., “accompanied by resilient growth” rather than macroeconomic weakness seen in the rest of the world, especially China and Europe, plus “signs of a potential bottoming out in USD speculative futures” means that “the trade-down in the dollar looks technically stretched,” Barclays told clients. – CNBC
