(Bloomberg) — US equity futures held slim gains as the busiest week of the earnings season gathered momentum, with hopes for a sustained rally hinging on whether big tech can justify lofty valuations inspired by the artificial intelligence boom.
Most Read from Bloomberg
Contracts on the S&P 500 and Nasdaq 100 edged about 0.3% higher after Wall Street’s rebound from a $2 trillion sellof. Early results Tuesday were mostly positive, with shares of United Parcel Service Inc. and General Motors Co. rising in premarket trading after earnings beats. PepsiCo Inc. slipped after reporting falling volumes in North America.
But the main event will be the “Magnificent Seven” cohort of tech megacaps, with Tesla Inc. set to be the first to report after today’s market close. Next up is Meta Platforms Inc. on Wednesday, followed by Microsoft Corp. and Alphabet Inc. on Thursday.
Earnings will stay front and center of investors’ minds this week with about 180 companies — representing over 40% of the S&P 500 market value — reporting results. The focus on corporate profits comes after a rout fueled by geopolitical fears and signals the Federal Reserve will be in no rush to lower rates.
“Whether markets see further consolidation from here is likely to hinge on the assessment of the sustainability of AI demand ahead following the earnings releases,” said Eddie Cheung, a senior strategist at Credit Agricole CIB.
The Stoxx Europe 600 index climbed 1%, with the technology sector leading the advance. SAP SE jumped more than 4% as a boom in demand for artificial intelligence fueled the German software company’s growth. Drugmaker Novartis AG added as much as 5% after lifting full-year guidance.
PMI data on Tuesday reinforced the positive mood in Europe. Private-sector activity advanced to the highest level in almost a year, driven by a buoyant services sector and Germany’s return to growth. Barring any economic surprises, a rate cut in June is a “fait accompli,” European Central Bank Vice President Luis de Guindos said.
“We remain focused on the current earnings season, which could re-focus investor attention on solid underlying fundamentals,” Citigroup Inc. strategists Mihir Tirodkar and Beata Manthey wrote in a note. “We would view the recent pullback as a buying opportunity.”
Treasuries were steady before a flurry of bond auctions that will test investors’ appetite after yields hit the highest in 2024. A gauge of the greenback was little changed.
Gold extended losses after its biggest daily decline in almost two years, with easing tension in the Middle East and signs the Fed will keep rates higher for longer crimping demand. Oil nudged dipped as traders weighed the next steps between Israel and Iran amid signs of easing hostilities following a tit-for-tat exchange of attacks last week.
Elevated Multiples
The challenge to S&P 500 returns is that companies will have to produce earnings — and outlooks — that support the already elevated multiples. Profits for the Magnificent Seven are forecast to rise 38% in the first quarter from a year ago, dwarfing the overall S&P 500’s 2.4% anticipated year-over-year earnings growth, according to Bloomberg Intelligence.
But excluding Nvidia, the leading chipmaker for AI technology, expected net income growth for the group falls to 23%. Nvidia, which Goldman Sachs Group Inc.’s trading desk dubbed “the most important stock on planet Earth,” doesn’t report its earnings for another month.
Investor positioning on megacap growth and tech stocks continues to be cut, down from the 97th percentile in early March to the 77th percentile now, according to Deutsche Bank AG strategists. The group is still the only sector where positioning is above historical average, even if no longer extreme, the strategists wrote.
Key events this week:
-
US new home sales, Tuesday
-
Germany IFO business climate, Wednesday
-
US durable goods, Wednesday
-
IBM, Boeing, Meta Platforms earnings, Wednesday
-
US GDP, wholesale inventories, initial jobless claims, Thursday
-
Microsoft, Alphabet, Airbus earnings, Thursday
-
Japan rate decision, Tokyo CPI, inflation and GDP forecasts, Friday
-
US personal income and spending, PCE deflator, University of Michigan consumer sentiment, Friday
-
Exxon Mobil, Chevron earnings, Friday
Some of the main moves in markets:
Stocks
-
S&P 500 futures rose 0.3% as of 6:56 a.m. New York time
-
Nasdaq 100 futures rose 0.4%
-
Futures on the Dow Jones Industrial Average rose 0.3%
-
The Stoxx Europe 600 rose 1%
-
The MSCI World index rose 0.3%
Currencies
-
The Bloomberg Dollar Spot Index was little changed
-
The euro was little changed at $1.0654
-
The British pound was little changed at $1.2351
-
The Japanese yen was little changed at 154.80 per dollar
Cryptocurrencies
-
Bitcoin fell 0.4% to $66,270.7
-
Ether fell 0.3% to $3,182.78
Bonds
-
The yield on 10-year Treasuries was little changed at 4.61%
-
Germany’s 10-year yield declined one basis point to 2.48%
-
Britain’s 10-year yield was little changed at 4.21%
Commodities
-
West Texas Intermediate crude fell 0.2% to $81.70 a barrel
-
Spot gold fell 0.9% to $2,305.25 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jessica Menton, Winnie Hsu and Michael Msika.
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.
