Monday April 26th


Stock futures are flat ahead of a big earnings week

U.S. stock index futures were mostly flat early Monday as investors braced for one of the busiest weeks of the first-quarter earnings season. Contracts linked to the Dow and the S&P 500 hovered around the flatline. Nasdaq 100 futures traded marginally lower. Tesla shares were 1% higher in premarket trading ahead of the electric carmaker’s earnings report after the bell Monday. Data out Monday showed new orders for capital goods rebounded less than expected in March. The Commerce Department said orders for non-defense capital goods excluding aircraft rose 0.9% last month, missing Dow Jones estimates of a 2.2% increase. Investors are due for a busy week ahead between a Federal Reserve meeting, the debut of President Joe Biden’s “American Families Plan,” more inflation data and a torrent of corporate earnings reports. About a third of the S&P 500 this week is set to update investors on how their businesses fared during the three months ended March 31. Some of the largest tech companies in the world are scheduled to report results this week, including Apple, Microsoft, Amazon and Alphabet. With the global economy gradually reopening, firms like Boeing, Ford and Caterpillar are expected to note cost pressures they are facing from rising materials and transportation prices. Corporations have for the most part managed to beat Wall Street’s forecasts thus far into earnings season. With 25% of the companies in the S&P 500 reporting first-quarter results, 84% have reported a positive per-share earnings surprise and 77% have topped revenue estimates. If 84% is the final percentage, it will tie the mark for the highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. Still, strong first-quarter results have been met with a mostly lukewarm reception from investors. Strategists say already-high valuations and near-record-high levels on the S&P 500 and Dow have kept traders’ enthusiasm in check. But indexes are within 1% of their all-time highs. Equity markets came under pressure last week after multiple outlets reported that Biden will seek to increase the capital gains tax on wealthy Americans to help pay for the second part of his Build Back Better agenda. The president is expected to detail the $1.8 trillion plan, including spending proposals aimed at worker education and family support, to a joint session of Congress Wednesday evening. The proposal would hike the capital gains rate to 39.6% for those earning $1 million or more, up from 20% currently, according to Bloomberg News. News that the White House may look to hike the capital gains tax on the nation’s rich pushed the S&P 500 down almost 1% on Thursday, when multiple outlets began reporting the proposed increase. Though the broad equity index managed to more than recoup those losses with a 1.1% rebound on Friday, it still ended the week down 0.13% and snapped a four-week win streak. The Dow and the Nasdaq fell 0.5% and 0.3% last week,  espectively. Evercore ISI strategist Dennis DeBusschere 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 win streak, but that creeping pessimism shouldn’t last too much longer. “A rapidly improving labor market, which will continue as US normalizes, is inconsistent with peak GDP fears and suggest the output gap will close quickly, putting upward pressure on inflation, bond yields and Cyclical asset prices,” he wrote. He recommended investors preempt a pivot in market tone and snap up stocks sensitive to the health of the U.S. economy, known as cyclicals. “It is worth getting ahead of that sentiment shift (less bad news) now and reengaging in Cyclicals and fading Defensives,” DeBusschere added. “If we learned anything from the data last week it is that 1) Europe is not showing signs of being the drag on global activity 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 letting inflation run hot, while assuring markets it sees the pick-up in prices as only temporary. Chairman Jerome Powell will host a press conference Wednesday afternoon to discuss the Federal Open Market Committee’s decision. Bitcoin rebounded from its recent swoon, with the cryptocurrency up about 8% to $53,484.55 on Monday. That’s still down about $10,000 from its high earlier this month. Shares in major Asia-Pacific markets were mixed on Monday as investors continued to watch the Covid situation in India. The Nikkei 225 in Japan gained 0.36% to close at 29,126.23 while the Topix index rose 0.17% to finish the trading day at 1,918.15. South Korea’s Kospi advanced 0.99% to close at 3,217.53. Mainland Chinese stocks closed lower, with the Shanghai composite down 0.95% to 3,441.17 and the Shenzhen component slipping 0.888% to 14,224.45. Hong Kong’s Hang Seng index slid about 0.4%, as of its final hour of trading. Oil prices fell on Monday on fears that surging COVID-19 cases in India will drive down fuel demand in the world’s third biggest oil importer and as investors adjusted positions ahead of a planned increase in OPEC+ oil output from May. Brent crude futures dropped 97 cents, or 1.5%, to $65.14 a barrel, following a 1.1% rise on Friday. U.S. West Texas Intermediate (WTI) crude futures were down 85 cents, or1.4%, at $61.28 a barrel, after rising 1.2% on Friday. Both benchmark crudes fell about 1% last week. Gold prices held firm on Monday, supported by a weaker dollar ahead of the U.S. Federal Reserve’s meeting this week, while supply worries kept palladium near record highs hit in the previous session. Spot gold was up 0.1% at $1,779.73 an ounce. U.S. gold futures rose 0.1% to $1,779.60.