Stuck On Growth And Earnings Concerns

A lot of companies have reported their quarterly results since yesterday’s close and, in a manner of speaking, we are only just getting started. Unfortunately, the latest batch of results have failed to jumpstart the equity futures market.

Currently, the S&P 500 futures are down 17 points and are trading 0.4% below fair value, the Nasdaq 100 futures are down 53 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 70 points and are trading 0.2% below fair value.

There has been plenty of good earnings news. Dow components McDonald’s (MCD), 3M (MMM), Dow, Inc. (DOW), and Verizon (VZ) all exceeded consensus earnings estimates, as did fellow blue chip companies PepsiCo (PEP), General Motors (GM), General Electric (GE), Whirlpool (WHR), Sherwin-Williams (SHW), and Raytheon Technologies (RTX) to name a few others.

Still, the aggregate reaction to those reports hasn’t been enough to drive the market into a buying mode.

The reasons why are debatable, yet there are at least three reasons why the equity futures market has a tepid disposition:

• Shares of regional bank First Republic (FRC) are down 24% following the bank’s report of a 40% drop in deposits. That deposit decline and the reaction of the stock is weighing on sentiment.
• UPS (UPS) came up shy of the Q1 consensus EPS estimate and lowered its FY23 revenue outlook to around $97.0 billion from $97.0-99.4 billion due in part to changing consumer behavior, which is piquing concerns about the broader economic outlook and earnings prospects.
• There is some hesitation in front of earnings reports after the close from Alphabet (GOOG) and Microsoft (MSFT).

To be fair, the equity futures market has bounced back from larger losses seen earlier, yet it is still pointing to a lackluster open for the cash market that is in keeping with the lackluster action that has been seen for the past few weeks.

Market participants are presumably waiting for things to take a more convincing turn, one way or another, following the reports from the mega-cap companies. We will get two tonight followed by the report from Meta Platforms (META) after Wednesday’s close and the report from Amazon.com (AMZN) after Thursday’s close. Apple (AAPL) reports next week.

Growth concerns, however, appear to be hanging over the market for now. You can see it in the Treasury market and in commodity prices. The former is rallying while the latter are sliding.

The 2-yr note yield is down nine basis points to 4.04% and the 10-yr note yield is down nine basis points to 3.43%. WTI crude oil futures are down 0.9% to $78.04 per barrel and copper futures are down 2.6% to $3.85 per pound.

Accordingly, today’s economic releases — the February FHFA Housing Price Index and February S&P Case-Shiller Home Price Index at 9:00 a.m. ET and the March New Home Sales and April Consumer Confidence reports at 10:00 a.m. ET — will be commanding some added attention as potential market drivers leading up to tonight’s earnings results.

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Originally Posted April 25, 2023 – Stuck on growth and earnings concerns