U.S. stock futures fell Thursday as the prospect of the Fed responding aggressively to 40-year high inflation left traders wary at the start of the U.S. corporate earnings season.
How are stock-index futures trading
- S&P 500 futures ES00 dipped 28 points, or 0.7%, to 3778
- Dow Jones Industrial Average YM00 futures fell 164 points, or 0.6%, to 30586
- Nasdaq 100 futures NQ00 eased 80 points, or 0.7%, to 11682
On Wednesday, the Dow Jones Industrial Average DJIA fell 209 points, or 0.67%, to 30773, the S&P 500 SPX declined 17 points, or 0.45%, to 3802, and the Nasdaq Composite COMP dropped 17 points, or 0.15%, to 11248.
The S&P 500 by Wednesday’s close had recorded its fourth consecutive session of losses, shedding 100.84 points or 2.58% over that time period.
What’s driving markets
Federal Reserve rate hike worries continued to reverberate. Traders were pricing in a 75% probability that Chairman Jay Powell and colleagues will raise interest rates by 100 basis points in less than two weeks time as they try to crush inflation that has jumped above 9% to a 41-year high.
The U.S. dollar DXY is firmer and stock futures are under pressure as investors fret that higher borrowing costs will slow the economy and crimp corporate profits.
To that end, attention turns to the second-quarter earnings season, which begins in earnest on Thursday, with results from the big U.S. banks, JPMorgan Chase JPM and Morgan Stanley MS.
Analysts do not think that the results would yet show signs of customer stress, but the market would remain wary of the sector given the pessimistic economic outlook for later in the year.
“While [bank] stocks appear discounted at 8 to 9x 2023 P/E vs. 11 to 13x historical average, investors [are] worried about downside risks to 2023 EPS from slower growth, higher credit costs and declining margins,” said strategists at BoA Securities.
“Absent a macro shift (inflation outlook, Ukraine war) we don’t expect results to change the cautious investor attitude towards the group,” they added.
For the wider market, observers estimate a Q2 earnings growth rate of 4.3%, which would be the lowest for the S&P 500 since the fourth quarter of 2020, according to John Butters, senior earnings analyst at FactSet.
However, given the market’s recent retreat —the S&P 500 has lost 20.2% so far in 2022 — any such advance in corporate profits would leave stocks relatively fairly valued.
“The forward 12-month P/E ratio for the S&P 500 is 16.3. This P/E ratio is below the 5-year average (18.6) and below the 10-year average (17.0),” Butters added.
Other markets
- Wall Street’s choppy session overnight left most Asian and European bourses displaying little risk appetite. The Stoxx 600 XX:SXXP in Europe lost 0.5% and Hong Kong’s Hang Seng HK:HSI fell 0.5%. The Nikkei 225 JP:NIK in Japan bucked the trend and managed a 0.6% gain.
- The 10-year Treasury yield BX:TMUBMUSD10Y was up 4.4 basis points to 2.982% after falling for the past three sessions.
- The dollar index DXY rose 0.5% to 108.53, flirting near 20-year highs on expectations for more Fed rate hikes. This put pressure on dollar-denominated commodities, with WTI crude CL off 1.2% to $95.16 a barrel.
- Bitcoin BTCUSD is up 1.6% to $19978, recovering some ground after crypto lender Celsius filed for bankruptcy.