Stock futures calm in anticipation of big earnings week

People walk past the New York Stock Exchange in Lower Manhattan on October 5, 2020 in New York City.

Angela Weiss | AFP | Getty Images

Futures contracts, pegged to major US stock indices, remained stable at the start of the overnight session on Sunday evening as investors braced for one of the busiest weeks of the first quarter’s earnings season.

S&P 500 related contracts fell less than 0.1% while Dow related contracts rose 3 points. Nasdaq 100 futures were down less than 0.1%.

Investors face a busy week between a Federal Reserve meeting, President Joe Biden’s debut “American Families Plan,” more inflation data, and ongoing corporate earnings reports.

The coming week is an important week for corporate earnings. About a third of the S&P 500 will provide investors with information on how their business has performed in the three months ended March 31. Some of the largest companies in the world are expected to publish results this week such as Apple, Microsoft, Amazon and Alphabet.

As the global economy gradually reopens, companies like Boeing, Ford and Caterpillar are expected to notice the cost pressures they face from rising material and transportation prices.

Companies so far have largely managed to beat Wall Street’s predictions for the earnings season. With 25% of the companies in the S&P 500 reporting results for the first quarter, 84% reported a positive earnings surprise per share and 77% beat sales estimates.

If 84% is the final percentage, that will be the mark for the highest percentage of the S&P 500 companies reporting a positive EPS surprise since FactSet started tracking that metric in 2008.

Nonetheless, the strong first quarter results were received largely lukewarm by investors. Strategists say that already high ratings and near record highs for the S&P 500 and Dow have kept traders’ excitement in check. However, the indices are within 1% of their all-time high.

Stock markets came under pressure last week after multiple outlets reported that Biden will seek to raise capital gains tax for wealthy Americans to help fund the second part of his Build Back Better agenda. The president is expected to detail the $ 1.8 trillion plan, including spending proposals for worker education and family support, at a joint session of Congress on Wednesday evening.

The proposal would increase the capital gains rate for those earning $ 1 million or more from the current 20% to 39.6%, according to Bloomberg News.

News that the White House could seek to hike capital gains tax on the country’s rich pushed the S&P 500 down nearly 1% on Thursday as multiple outlets reported the proposed hike.

Although the broad stock index more than made up for those losses with a rebound of 1.1% on Friday, it ended the week down 0.13% and posted a four-week winning streak. The Dow and Nasdaq fell 0.5% and 0.3% respectively last week.

Dennis DeBusschere, ISI strategist at Evercore, told CNBC on Sunday that fears of a peak in economic growth and negative global Covid-19 news may have ended the S&P 500’s weekly winning streak, but that creeping pessimism didn’t last for too long should stop.

“A rapidly improving labor market, which will continue as the US normalizes, contradicts major GDP fears and suggests that the output gap is closing rapidly and inflation, bond yields and cyclical asset prices are under pressure will put, “he wrote.

He advised investors to avoid pivoting on the market tone and buy stocks sensitive to the health of the US economy known as cyclicals.

“It’s worth getting out of this sentiment shift (less bad news) now and getting back to cyclicals and defensive fading,” added DeBusschere. “If we learned anything from the data last week, it is that 1) Europe is showing no signs that global activity is being adversely affected, and 2) pent-up consumer demand is proving resilient to negative COVID headlines.”

The Fed, which meets on Tuesday and Wednesday, is expected to defend its policy of keeping inflation running hot while reassuring markets that the price hike is only temporary. Chairman Jerome Powell will hold a press conference Wednesday afternoon to discuss the Federal Open Market Committee’s decision.

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