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S&P 500 futures drop slightly ahead of start of earnings season

Traders on the floor of the NYSE, June 24, 2022.

Source: NYSE

U.S. stock futures fell late on Sunday as Wall Street priced in major corporate earnings reports and key inflation data, on the heels of a strong jobs report.

Futures contracts linked to the Dow Jones Industrial Average slid 51 points, or 0.1%. S&P 500 futures fell 0.2% and Nasdaq 100 futures lost 0.4%.

On Friday, the Dow Jones and S&P ended trading down slightly, while the Nasdaq Composite rose for a fifth straight day. All major averages got a winning week after a stronger-than-expected jobs report on Friday showed the economic slowdown worrying investors has yet to arrive and added to positive sentiment.

Treasury yields surged, with the 2-year Treasury yield holding above the 10-year yield, a reversal that many see as an indicator of recession.

“While markets ended solid green for the week, investors should brace for continued volatility in July, with lingering uncertainties over inflation, Fed policy, recession fears, ongoing war between Russia and Ukraine, all as we also enter corporate earnings season,” said Greg Bassuk, Managing Director of AXS Investments.

The jobs report, while good for the economy, could encourage the Federal Reserve to continue its aggressive rate hikes in the coming months to combat persistently high inflation. It will be tested this week with a slew of big bank earnings and consumer inflation data this week on deck.

“With recession fears hanging over markets, investors are hyper-focused on corporate earnings to get better clues about the health of US companies and the broader US economy,” Bassuk said.

“A sharper lens will be needed to dissect these earnings reports, as a strong second quarter could come with a very conservative outlook,” he added. “As raw material and other production costs remain high, companies will consider how these high prices can be passed on to consumers and, similarly, how to maintain strong profits in an economic, geopolitical and other key headwinds.

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PepsiCo and Delta Air Lines are expected to release results Tuesday and Wednesday. JPMorgan Chase, Morgan Stanley, Wells Fargo and Citigroup are expected to report at the end of the week.

Investors are also anticipating key inflation data this week. The June Consumer Price Index will be released on Wednesday and is expected to show headline inflation, including food and energy, exceeding May’s 8.6% level.

“Investors expect more aggressive rate-hike action from the Fed unless inflation data shows an outsized price cut, offset by fears that an overly aggressive rate hike could tip the United States into recessionary territory,” Bassuk said.

The June producer price index is due out on Thursday and the University of Michigan consumer sentiment report for July will be released on Friday.

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