June 24, 2024
U.S. stocks struggle for direction with earnings season set to pick up steam

U.S. stocks struggle for direction with earnings season set to pick up steam

U.S. stocks flipped between small gains and losses Monday, with the S&P 500 near the top end of its recent range ahead of the first full week of first-quarter earnings season.

How stocks are trading
  • The Dow Jones Industrial Average DJIA, -0.00% was up off 45 points, 0.1%, at 33,844.
  • The S&P 500 SPX, -0.21% fell 106 points, or 0.3%, to 4,126.
  • The Nasdaq Composite COMP, -0.38% was down 42 points, or 0.3%, at 12,081.

The Dow last week rose 1.2%, while the S&P 500 gained 0.8% and the technology-heavy Nasdaq Composite edged up 0.3%. The Dow booked a fourth straight week of gains in its longest winning streak since October, according to Dow Jones Market Data.

What’s driving markets

The S&P 500 was trading near the top end of the 3,800 to 4,200 range within which it has vacillated for about five months.

Some big banks kicked off the first-quarter U.S. earnings season on Friday, and the positive response to those reports signals easing anxiety about the financial sector and broader confidence about company profitability — all while concerns about Federal Reserve rate increases seem to dim.

“Cautious optimism is the Monday motivation mantra, as stronger U.S. corporate news…masks ongoing worries about the knock-on effect of higher interest rates,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

The first-quarter earnings-reporting season picks up steam this week, with 60 S&P 500 companies, including six Dow components, reporting quarterly results, according to FactSet. Those companies will report as Wall Street analysts remain pessimistic about results for the quarter and the prospect of another so-called earnings recession in which profits contract for at least two straight quarters.

Read: Tesla, Netflix earnings due: Cheaper cars, cheaper content, more workout videos, as ‘earnings recession’ seems likely

The market’s more relaxed tone of late can be seen in various anxiety barometers, noted Henry Allen, strategist at Deutsche Bank.

“[M]arkets are continuing to shrug off the financial turmoil that brought such volatile conditions only a month ago. In fact by the end of last week, the VIX index of volatility had closed at just 17.07 [points], which is its lowest level since 4 January 2022, on the same day that the S&P 500 hit its record intraday high,” Allen wrote in a note to clients.

“Other measures are painting a similar picture as well, with the MOVE index of Treasury volatility beneath its pre-[Silicon Valley Bank] levels again, whilst Bloomberg’s index of U.S. financial conditions has now erased more than 80% of the tightening seen last month,” Allen added.

The 4,150 level is worth keeping an eye on for the S&P 500, said Chris Weston, head of research at Australian brokerage Pepperstone, in a note. A close above that level “would get a lot of attention,” while moves to the upside remain the “pain trade,” he wrote, while warning that a follow through on last week’s late rebound by the U.S. dollar could weigh on equities.

The New York Fed’s Empire State business-conditions index, a gauge of manufacturing activity in the state, jumped 35.4 points in April to 10.8, the regional Fed bank said Monday. 

Economists had expected a reading of negative 15, according to a survey by The Wall Street Journal. Any reading above zero indicates improving conditions. This was the first reading in positive territory in five months.

The National Association of Home Builders monthly confidence index rose one point to 45 in April, the trade group said on Monday. This is the fourth month in a row that sentiment has improved among builders. The slight rise in confidence matched expectations on Wall Street.

Richmond Fed President Tom Barkin is due to make comments at 12:45 p.m. Eastern

Companies in focus
  • Charles Schwab Corp. SCHW, +2.92% shares rose 2.8% after the discount broker and financial services company reported first-quarter profit that beat expectations, while revenue came up a bit short.
  • Shares of Prometheus Biosciences RXDX, +69.28% surged nearly 70% after drugmaker Merck & Co. Inc. MRK, -0.51% MRK, -0.51% signed a deal on Sunday to acquire the biotech company for $200 a share, or about $10.8 billion. Merck shares were down 0.8%.
  • Shares of State Street Corp. STT, -11.70% slid 11.7% after the bank’s first-quarter earnings fell far short of estimates. State Street said it faced fee revenue headwinds from “significantly lower average market levels.” Shares of rival custodian bank Bank of New York Mellon Corp. BK, -6.36% also fell, down 6.6%.

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