Stocks Move Higher Before the Open as Focus Shifts to Fed Meeting Next Week

Oleksandr Pylypenko - Barchart - Fri Jul 21, 2023

September S&P 500 futures (ESU23) are up +0.25%, and September Nasdaq 100 E-Mini futures (NQU23) are up +0.36% this morning after three major U.S. benchmark indices closed mixed on Thursday as market participants digested a mixed slate of corporate earnings and parsed through economic data that underscored the continued strength of the U.S. labor market, with the focus shifting to the Federal Reserve’s interest-rate decision scheduled for next week.

In Thursday’s trading session, the blue-chip Dow outperformed the other two indices, buoyed by an over +6% jump in Johnson & Johnson (JNJ) after the healthcare giant reported upbeat Q2 results and raised its full-year guidance. At the same time, Netflix Inc (NFLX) plunged more than -8% after the streaming video company reported weaker-than-expected Q2 revenue and issued disappointing Q3 revenue guidance. Also, Tesla Inc (TSLA) tumbled over -9% and was the top percentage loser on the tech-heavy Nasdaq 100 after the electric-car maker’s gross margins shrank to a four-year low in Q2 and CEO Elon Musk indicated the possibility of price cuts during “turbulent times.” In addition, semiconductor stocks lost ground after Taiwan Semiconductor Manufacturing Co. cut its 2023 revenue outlook, with Applied Materials (AMAT) and Advanced Micro Devices (AMD) dropping more than -5%.

The Labor Department’s report on Thursday showed claims for state unemployment benefits unexpectedly fell -9K to a 2-month low of 228K, stronger than expectations of 242K, indicating ongoing strength in the labor market. At the same time, the U.S. Philadelphia Fed manufacturing index stood at -13.5 in July, lower than the anticipated -10.0 number. In addition, U.S. June existing home sales fell -3.3% m/m to a 5-month low of 4.16M, weaker than expectations of 4.20M.

“The jobless claims report, along with solid retail sales on Tuesday, pushed Treasury yields up on the idea that the Fed will keep rates higher for longer. We still have some probability of another move in September or November,” said Ben Jeffery, a strategist on the U.S. rates team at BMO Capital Markets.

Meanwhile, U.S. rate futures have priced in a 99.8% probability of a 25 basis point rate increase at the upcoming monetary policy meeting.

On the earnings front, major companies like American Express (AXP), Schlumberger (SLB), and Roper Technologies (ROP) are slated to release their quarterly results today. Analysts estimate aggregate S&P 500 earnings to fall 7.9% year-over-year in Q2, compared with an expected drop of 5.7% at the start of the month.

The U.S. economic data slate is mainly empty on Friday.

In the bond markets, United States 10-Year rates are at 3.858%, up +0.13%.

The Euro Stoxx 50 futures are down -0.09% this morning as investors digested more corporate earnings reports as well as stronger-than-expected U.K. retail sales data. Losses in technology stocks are leading the overall market lower, with SAP Se (SAP.D.DX) dropping over -4% after the software company reported weaker-than-expected sales for its key cloud unit. The Office for National Statistics said Friday that U.K. consumer spending in June was stronger than anticipated, despite high inflation, as wage growth picked up. According to strategists at Morgan Stanley, earnings in Europe have started off slowly, with results coming in softer than in previous quarters and only the largest companies showing strong profits. In corporate news, shares of Lonza Group Ag (LONN.Z.IX) plunged over -9% after the Swiss contract drug manufacturer cut its 2023 outlook. Also, Ssab Ab (SSABB.S.DX) tumbled more than -13% after the Swedish steelmaker reported a bigger-than-expected drop in quarterly earnings.

U.K.’s Core Retail Sales and U.K.’s Retail Sales data were released today.

U.K. June Core Retail Sales stood at +0.8% m/m and -0.9% y/y, stronger than expectations of +0.2% m/m and -1.6% y/y.

U.K. June Retail Sales came in at +0.7% m/m and -1.0% y/y, stronger than expectations of +0.2% m/m and -1.5% y/y.

Asian stock markets today closed in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.06%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.57%.

China’s Shanghai Composite today closed slightly lower as new measures aimed to help the auto and electronics sectors failed to boost investor sentiment. China’s top economic planner, the National Development and Reform Commission, unveiled a series of measures on Friday aimed at boosting sales of automobiles and electronics. Additionally, Chinese authorities cautioned local governments against implementing policies that could lead to cutthroat competition as part of their efforts to shore up a slowing economy. However, UBS analysts in a note expressed a pessimistic outlook for auto retail sales in the second half, citing a sluggish economy, weak consumption, and persistent deflation risk. Meanwhile, liquor stocks outperformed on Friday, driven by analysts’ expectations of steady earnings growth in the second quarter and the belief that the sector’s valuation may have reached its bottom. Automobile and consumer electronics stocks also gained ground on Friday.

“Additional stimulus measures may come through after the Politburo meeting, but the scale and targeted areas remain to be confirmed,” Morgan Stanley strategists wrote in a note.

Japan’s Nikkei 225 Stock Index closed lower today, primarily due to a steep sell-off in the semiconductor industry following a gloomy outlook presented by chipmaking giant Taiwan Semiconductor Manufacturing Co. Also, data showed on Friday that the country’s core consumer inflation re-accelerated in June, remaining above the central bank’s 2% target for the 15th consecutive month. Meanwhile, domestic semiconductor industry giants plunged on Friday after Taiwan Semiconductor Manufacturing Co. cut its sales outlook for this year, with Tokyo Electron and Advantest tumbling over -5%. On the positive side, Nidec Corporation surged more than +10% after the company’s first-quarter net profit rose +55% from a year earlier and topped analysts’ expectations. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 0.96% to 20.01.

The Japanese June National Core CPI stood at +3.3% y/y, in line with expectations.

Pre-Market U.S. Stock Movers

Digital World Acquisition Corp (DWAC) surged over +21% in pre-market trading after settling fraud charges with the Securities and Exchange Commission.

Evelo Biosciences Inc (EVLO) climbed about +10% in pre-market trading after the company announced that it had entered into a sublease termination and surrender pact with Bio-Rad Laboratories.

CSX Corporation (CSX) slid over -4% in pre-market trading after the rails company reported weaker-than-expected Q2 results.

Intuitive Surgical Inc (ISRG) plunged more than -4% in pre-market trading despite posting upbeat Q2 results.

SL Green Realty Corp (SLG) rose about +2% in pre-market trading after Piper Sandler upgraded the stock to Overweight from Neutral.

Sunnova Energy International Inc (NOVA) slid over -2% in pre-market trading after BMO Capital downgraded the stock to Market Perform from Outperform.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Friday - July 21st

American Express (AXP), Schlumberger (SLB), Roper Technologies (ROP), Regions Financial (RF), Huntington Bancshares (HBAN), IPG (IPG), AutoNation (AN), Autoliv (ALV), Comerica (CMA), Sensient Technologies (SXT), World Acceptance (WRLD).

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On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.