S&P 500 futures slip as rates reach a recent 3-year high, investors evaluate a big week of earnings
April 19, 2022: -On Monday, Stock futures come down as the 10-year Treasury yield reached a new three-year high and a week of major first-quarter earnings reports kicked off.
The Dow Jones Industrial Average Futures is losing 39 points or 0.1%. S&P 500 futures shed 0.3%. Nasdaq futures were less than 0.5%.
On Monday, the 10-year Treasury yield reached its highest level since late 2018, trading at more than 2.87% at one point. The result was at 1.71% to start March but has shot more heightened as the Federal Reserve pivoted to a aggressive tightening stance. That change has weighed on stocks and triggering concerns about an impending recession.
On Monday, Bank of America reported quarterly results showing a 13% year-over-year drop in earnings each share, though the results were slightly higher than expected. The stock is gaining 1.3% in the premarket.
This week, several Dow blue-chip names report earnings, including IBM, Procter and Gamble, Travelers, Dow Inc, Johnson and Johnson, American Express, and Verizon.
Technology bellwethers are set to report quarterly earnings, with Netflix due on Tuesday and Tesla out on Wednesday. United Airlines, American Airlines, and Alaska Air are also on the calendar, as are CSX and Union Pacific railroads.
Investors will pay close attention to forwarding guidance, especially for comments on how companies handle increasing costs. March’s consumer price index reading last week showed an 8.5% increase from a year ago, the fastest annual gain since December 1981.
“The odds seem to belong against underlying inflation moderating to an acceptable speed without a significant deceleration of demand growth,” 22V Research’s Gerard MacDonell said on Sunday.
According to FactSet, earnings season is off to a decent start, with 77% of S&P 500 companies reporting earnings for each share above expectations. Seven percent of the benchmark has reported results so far. According to FactSet’s analysis of actual results and future estimates, analysts believe first-quarter earnings will increase 5% for the quarter when all S&P 500 companies finish reporting.
Morgan Stanley analysts say earnings reports for the first quarter could be more disappointing than expected.
“Earnings revisions breadth for the S&P 500 has resumed its downtrend over the past two weeks and is once again approaching negative territory,” the firm’s equity strategist Michael Wilson said in a note Monday. “The Morgan Stanley Business Conditions Index decreased to its lowest level since April of 2020, and margin expectations look over optimistic for the balance of ’22 given the myriad of cost pressures companies face.”
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