U.S. S&P 500 futures were little changed on Sunday night after another losing week for the major averages.
Futures tied to the broader index ticked up by 0.03%. Dow Jones Industrial Average futures dipped 7 points, or by 0.02%. Meanwhile, Nasdaq 100 futures rose 0.18%.
Palo Alto Networks jumped 11% in extended trading after reporting earnings results late Friday that topped analysts’ estimates. As of Friday’s close, the stock was down by 16% this month.
Investors are coming off a mixed session on Friday. The Dow Jones Industrial Average added 25.83 points, or 0.07% higher. Meanwhile, the S&P 500 edged down 0.01%, while the Nasdaq Composite fell 0.2%.
However, the major averages declined on a weekly basis in the midst of the summer doldrums on Wall Street. The Nasdaq Composite closed the week lower about 2.6%, down for a third straight week for the first time since December.
Meanwhile, the Dow closed the week lower by 2.2%, its worst streak since March. And the S&P 500 dropped 2.1% and posted its third consecutive losing week, which hadn’t happened since February.
Investors digested rising bond yields and weakness out of China that put a damper on markets during a typically lackluster season. On Friday, however, bond yields eased somewhat from their recent highs.
“The S&P 500 is sitting in short-term oversold territory, a technical measure encompassing numerous components including investor sentiment along with a host of more esoteric measures,” Quincy Krosby, chief global strategist at LPL Financial, wrote on Friday.
Regardless, there are several major market events in the week ahead. Investors are awaiting the latest quarterly results from key artificial intelligence beneficiary Nvidia on Wednesday.
They’re also anticipating an address Friday morning from Federal Reserve Chair Jerome Powell at the central bank’s annual symposium at Jackson Hole, Wyoming.
Palo Alto Networks jumped 11% in extended trading after posting fiscal fourth-quarter earnings results and first-quarter earnings guidance late Friday that exceeded analysts’ estimates.
The cybersecurity company reported fourth-quarter adjusted earnings of $1.44 per share, greater than the $1.28 per share expected by analysts polled by Refinitiv. However, revenue was slightly lower. The company reported fourth-quarter revenue of $1.953 billion, lower than the $1.956 billion consensus estimate.
Palo Alto Networks also issued fiscal first-quarter guidance; it sees adjusted per-share earnings in the range of $1.15 to $1.17, which topped the estimated $1.11 per share. Again, however, revenue fell short. The company sees first-quarter revenue of $1.82 billion to 1.85 billion, lower than the expected $1.93 billion.
As of Friday’s close, the stock was down by 16% in August, CNBC reported.
Meanwhile, MarketWatch cited that the U.S. stock market ended mostly lower Friday, with the S&P 500 SPX suffering a third straight week of losses, according to Dow Jones Market Data. The widely followed index is down 4.8% so far in August, on pace for its biggest monthly loss since December, FactSet data show.
The Nasdaq Composite COMP and Dow Jones Industrial Average DJIA also finished Friday with weekly losses. The technology-heavy Nasdaq joined the S&P 500 in sliding three consecutive weeks.
There’s some investor concern in the stock market that the strength of the U.S. economy could cause the Fed to increase the tightening of its monetary policy, according to Rieder. He said that fear, combined with an increased supply of U.S. Treasurys, appears to be weighing on equities.
“There’s this incredible amount of bill issuance and draining of liquidity that I think is starting to kick in,” said Rieder, referring to Treasury bills, or U.S. government debt that matures within months and has been yielding more than 5% lately.
Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said by phone that earlier this year the firm took some money out of the equities market, cutting back on tech stocks to invest in Treasury bills. He said that positions the firm to invest in stock-market pullbacks, with Wells Fargo expecting the S&P 500 to end 2023 at 4,100.
The S&P 500 ended Friday at 4,369.71, down 8.9% from its record close in January 2022, according to Dow Jones Market Data.
In Wren’s view, “the Fed’s not finished hiking” rates to combat sticky core inflation and Chair Jerome Powell may take the opportunity at the Jackson Hole meeting to signal to the market that the central bank is not close to cutting rates.
Powell may continue to sound “hawkish” in reiterating that the Fed could again raise its benchmark rate in order to bring inflation down to its 2% target, said Wren.
Chair Powell is scheduled to speak at the Jackson Hole meeting on Aug. 25.
“The U.S. economy is actually doing very well right now,” said David Kelly, chief global strategist at J.P. Morgan Asset Management, in a phone interview. “I still think that inflation can absolutely come down without a recession.”
Many investors have long worried that the Fed risks triggering a recession by continuing to raise rates after rapidly hiking them last year to tame high inflation.
“Unless the economy cracks in some way, certainly we don’t get a rate cut this year,” in Kelly’s view.
But Kelly anticipates the Fed might begin to slowly reduce rates in the spring of 2024 should inflation continue easing toward 2%. He said the central bank would probably accelerate the rate cuts if the labor market began “flashing an orange light that we’re about to head into a recession” with back-to-back monthly losses in jobs in nonfarm payroll employment reports.
Meanwhile, 10-year Treasury yields have risen for five straight weeks, their longest stretch of increases since March, to end Friday at 4.251%, according to Dow Jones Market Data. The rate retreated a bit Friday after on Aug. 17 finishing at the highest level since November 2007 based on 3 p.m. Eastern Time levels.
BlackRock’s Rieder chalked up the climb in part to an increased supply of U.S. government debt, the ripple effect of the Bank of Japan tweaking its yield-curve control to allow its own 10-year yields to rise, and Treasury bills offering competitive rates of around 5.5% with no credit or duration risk.
While the U.S. economy is doing well, China’s is not, said Kelly. The country’s property sector has been suffering while investors worry its slowing economy could wind up in recession.
A slowing Chinese economy could take pressure off demand for commodities, potentially having a deflationary effect that helps lower costs for companies, according to Citi’s Chronert. But he also cautioned that an economic downturn in China could hurt earnings of U.S. manufacturers and retailers that are selling into the country.
Meanwhile, “the earnings picture still seems to be pretty good for the second half of this year” for U.S. companies, said Chronert.
That leaves investors closely watching Powell trying to balance the risk of cooling the U.S. economy too much in his bid to keep inflation under control with a restrictive policy rate. The Fed last month raised its benchmark rate to a target range of 5.25% to 5.5%, a 22-year high.
“If he starts waving a flag that it’s got to go significantly higher from here to get where he needs to be on inflation, then that’s an issue,” said Chronert.
