|Source: Economic Times|
The major U.S. stock indexes are on track to open at their highest levels since April 2022 on Wednesday morning, as optimism around the corporate earnings season buoys investor sentiment.
Futures tied to the S&P 500, Dow Jones Industrial Average, and Nasdaq 100 were little changed in early morning trading, pointing to a continuation of the rally that has pushed stocks higher over the past week.
Futures Steady Ahead of the Open
- S&P 500 futures dipped 1 point, or 0%, to 4587
- Dow futures rose 32 points, or 0.1%, to 35,174
- Nasdaq 100 futures eased 9 points, or 0.1%, to 15,966
On Tuesday, the Dow jumped 367 points, or 1.06%, to end at 34,952. The S&P 500 climbed 32 points, or 0.71%, to close at 4,555. Meanwhile, the tech-heavy Nasdaq gained 109 points, or 0.76%, finishing at 14,354.
Earnings Providing Tailwind for Stocks
The upbeat mood on Wall Street comes as investors welcome mostly better-than-expected results from companies that have reported earnings so far. Strong reports from big banks like JPMorgan Chase and Morgan Stanley last week set a positive tone for the season.
Financial sector earnings continue Wednesday, with Goldman Sachs and U.S. Bancorp both slated to release quarterly results before the market open. After the closing bell, electric vehicle maker Tesla and streaming giant Netflix will be among the companies reporting.
The solid start to earnings season is helping validate investor hopes that corporate profits can remain resilient even in the face of red-hot inflation and rapidly rising interest rates. While risks certainly remain, the early results suggest the economy has not slowed as sharply as some feared.
“Markets took some solace from the latest corporate and economic news, with hopeful signs that runaway inflation may be abating,” said Richard Hunter, head of markets at interactive investor. “In the U.S., the likelihood of a further interest rate rise next week from the Federal Reserve is all but a done deal, although more recent indicators suggest that the hike could mark the end of its aggressive monetary tightening offensive.”
Inflation Showing Signs of Cooling
Further bolstering sentiment are indications that inflation may have peaked and could start to decline more meaningfully.
Data out of the UK on Wednesday showed consumer prices rose at their slowest annual pace in over a year last month. The inflation slowdown sparked a rally in bonds and briefly lifted stock index futures.
Moderating price pressures could allow central banks to ease up on their ultra-hawkish rate hike campaigns aimed at taming inflation. Investors are betting the U.S. Federal Reserve will slow its pace of rate increases following an expected 75 basis point rate hike next week.
While the Fed is still likely to keep rates higher for longer to ensure inflation is fully defeated, the potential peak in price pressures is lifting hopes the economy could avoid a severe downturn.
“The current reporting season is off to a strong start, albeit against low expectations, pointing to an economy which has yet to suffer from the rising interest rate environment,” said Hunter.
Technicals Remain Supportive
From a technical perspective, the recent breakouts in the Dow and Dow Transports to their highest levels since spring suggest the uptrend remains intact, according to Mark Newton, head of technical strategy at Fundstrat.
He notes large cap technology stocks like Amazon also hitting new all-time highs reflects improving market internals. This signals the market’s recovery off June lows is sustainable for now.
That said, Newton believes the magnitude of the gains over the past week means stocks are due for a period of consolidation. Key levels to watch will be whether the S&P 500 can hold above 4,500 and if the Nasdaq can stay above 14,000 over the next week.
Absent an reversal of the breakouts, the technical backdrop remains bullish, Newton concludes. The next 7–9 trading days of July should provide more clues on if this bull run can be sustained.
On the economic data front, June housing starts and building permits figures will be released at 8:30 am ET. The housing market has slowed sharply amid higher mortgage rates, so the reports will provide a timely update on the sector.
In conclusion, stocks appear primed to extend their rebound rally on Wednesday, aided by solid corporate earnings and easing inflation concerns. However, after such a strong run over the past month, a near-term pause would not be surprising. Market technicals remain positive overall, but further gains may require confirmation that the economy and corporate profits can withstand stubbornly high interest rates.
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