On Monday, the US stock indexes were set to open lower, as investors were braced for the beginning of the earnings season this week that could put profits under pressure. This comes at a time when concerns of an economic recession are high because of the aggressive hike in the interest rates.
Uncertainty in market
The first half of the year had been dismal for Wall Street, but July kicked off on an upbeat note. But, now there are worries that there could be another sell-off due to upcoming quarterly results, as earnings may not live up to expectations.
Last week, trading remained quite choppy, but investors got some relief as commodity prices eased and the US Federal Reserve hinted that they could temper their interest rate hikes, amidst rising fears of a global recession.
On Friday, all three benchmark indexes in the US had closed higher, while the Nasdaq recorded a gain for the fifth session consecutively. Now, the market has priced in an interest rate hike of 75 basis points in July, but worries about future hikes have grown because of the better-than-expected US payroll data on Friday.
Earnings season
The US jobs report indicated that the labor market was still going strong and this alleviated some of the concerns about an immediate recession. However, it fueled worries of the US central bank becoming more aggressive in tightening its monetary policy in order to control the surging inflation.
The earnings season will kick off later this week with banks starting. These include some big names like Morgan Stanley, Citigroup Inc., and JPMorgan Chase & Co. They will post their earnings on Thursday and Friday, which will be watched for any indications of a slowdown in economic growth. Premarket trading saw a 1% decline in banks’ shares and then a 0.5% decline.
Market analysts said that not only were people concerned about weak earnings reports, but the rising US dollar would also become a problem for multinationals. While rising interest rates are usually good for banks, they will take a hit because of reduced advisory business and M&A activity.
Indexes’ performance
On Wednesday, the US consumer price data for the month of June is due and investors will be focused on this report for gauging the pace of inflation and how aggressive the Fed’s response would be.
There was a 0.5% drop in the Dow e-minis, or of 157 points, while a 0.62% drop was seen in S&P 500 e-minis, or 24.25 points. A 0.73% decline was also recorded in Nasdaq 100 e-minis, or 89.25 points.
There was a 6% drop in the shares of Twitter Inc. after Elon Musk’s announcement on Friday that he was backing out of his deal to buy the social media firm. Macau closed all of its casinos because of COVID-19 risks and this saw US casino operators Melco Resorts and Wynn Resorts decline by 6.1% and 4.6%, respectively. There was also a 2.1% decline in Under Armour Inc. after Jeffries changed its rating from ‘buy’ to ‘hold’.