Stocks Set to Open Lower as Investors Await Key U.S. Inflation Data and Big Tech Earnings

Oleksandr Pylypenko - Barchart - Mon Oct 23, 2023

December S&P 500 futures (ESZ23)are down -0.76%, and December Nasdaq 100 E-Mini futures (NQZ23) are down -0.92% this morning as the benchmark U.S. 10-year yield hit 5% for the first time since 2007 while market participants geared up for earnings reports from some of the biggest tech heavyweights as well as the release of the Fed’s favorite inflation gauge.

In Friday’s trading session, Wall Street’s major averages closed in the red, with the benchmark S&P 500, blue-chip Dow, and tech-heavy Nasdaq 100 dropping to 2-week lows. SolarEdge Technologies Inc (SEDG) tumbled over -27% and was the top percentage loser on the S&P 500 after cutting its Q3 revenue outlook, citing “substantial unexpected cancellations and pushouts of existing backlog from our European distributors.” Also, American Express Company (AXP) slid more than -5% after the credit card company posted weaker-than-expected Q3 network volume. In addition, regional bank stocks retreated, with Regions Financial Corporation (RF) plunging over -12% after the lender reported downbeat Q3 results and warned it expects further declines in net interest income. On the bullish side, Knight-Swift Transportation (KNX) climbed more than +11% after the company reported upbeat Q3 results.

Meanwhile, Cleveland Fed President Loretta Mester said Friday that the U.S. central bank is approaching the conclusion of its aggressive tightening campaign but signaled she still favors raising rates once more this year based on how the economy evolves. “Regardless of the decision made at our next meeting, if the economy evolves as anticipated, in my view, we are likely near or at a holding point on the funds rate,” Mester said. Also, Philadelphia Fed President Patrick Harker stated the Federal Reserve should hold interest rates steady, even in the face of slightly faster-than-expected economic growth. “We are at the point where we can hold rates where they are,” he said.

U.S. rate futures have priced in a 98.4% chance of no hike at the November FOMC meeting and a 24.2% probability of a 25 basis point rate increase at the conclusion of the Fed’s December meeting.

Third-quarter earnings season kicks into full gear, and investors await fresh reports from major global companies this week, including Microsoft (MSFT), Alphabet (GOOGL), Visa (V), Coca-Cola (KO), Meta Platforms (META), Boeing (BA), Amazon.com (AMZN), Mastercard (MA), Merck (MRK), Intel (INTC), Altria (MO), Exxon Mobil (XOM), Chevron (CVX), and Abbvie (ABBV).

In the coming week, the September reading of the U.S. core personal consumption expenditures price index, the Fed’s preferred inflation gauge, will be the main highlight. Also, market participants will be eyeing a spate of economic data, including the U.S. S&P Global Composite PMI (preliminary), S&P Global Manufacturing PMI (preliminary), S&P Global Services PMI (preliminary), Richmond Manufacturing Index, Building Permits, New Home Sales, Crude Oil Inventories, Core Durable Goods Orders, Durable Goods Orders, GDP (preliminary), GDP Price Index (preliminary), Initial Jobless Claims, Pending Home Sales, Personal Income, Personal Spending, and Michigan Consumer Sentiment.

In other news, investors are closely monitoring Middle East developments after Hamas released two U.S. hostages, and aid started to trickle through Egypt’s border with Gaza over the weekend.

The U.S. economic data slate is largely empty on Monday.

In the bond markets, United States 10-year rates are at 5.012%, up +1.81%.

The Euro Stoxx 50 futures are down -0.47% this morning as investors braced for a week filled with earnings reports and the European Central Bank’s policy meeting while remaining cautious due to tensions in the Middle East. Mining and real estate stocks underperformed on Monday, while retail stocks gained ground. Meanwhile, the European Central Bank is scheduled to announce its interest rate decision on Thursday, with the prevailing expectation being that interest rates will remain unchanged. In corporate news, Indivior Plc (INDV.LN) climbed over +4% after the drugmaker announced it would pay $385 million to settle a lawsuit. At the same time, Volkswagen Ag (VOW3.D.DX) slid more than -3% after the German carmaker slashed its full-year profit margin outlook.

The European economic data slate is mainly empty on Monday.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -1.47%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.83%.

China’s Shanghai Composite today closed lower, hitting an almost 1-year low as concerns over the troubled property sector persisted, and sentiment was further dampened by Beijing’s announcement of a series of investigations into Foxconn Technology Group. Tech stocks led the declines on Monday. Foxconn Industrial Internet Co., Foxconn’s major Shanghai-listed subsidiary, plunged about -10% following reports from state media over the weekend, indicating that regulators are conducting tax audits and reviewing land use by Foxconn. Meanwhile, Bloomberg News reported that China intends to hold a key financial policy gathering, which takes place once every five years, early next week to prevent risks and establish medium-term priorities. In other news, a state-run newspaper reported that China might consider reducing the disclosure of trading data for the Northbound channel of its Stock Connect mechanism used by offshore investors.

“Multiple factors were in play, including headlines around the export ban by the U.S., the widening Middle East conflict, and China’s strong third-quarter economic data print likely being interpreted as leading to a lower likelihood of stimulus in the fourth quarter,” UBS analysts wrote in a note.

Japan’s Nikkei 225 Stock Index closed lower today following Friday’s losses on Wall Street as events in the Middle East continued to make investors apprehensive. Energy and industrial stocks fell the most on Monday, while healthcare stocks outperformed. Chip-related stocks also retreated, with Advantest dropping about -3% and Renesas Electronics falling over -2%. Meanwhile, Japanese government bond yields surged to fresh multi-year highs on Monday following a report in the Nikkei newspaper on Sunday, indicating that Bank of Japan officials are considering whether to tweak their yield-curve control setting at an upcoming policy meeting next week. In corporate news, Daiichi Sankyo rose more than +2%, building on last week’s gains following a $5.5 billion deal with Merck to jointly develop cancer drugs. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +1.38% to 23.52.

“Concerns about a possible worsening of Middle East tensions will continue to be a weight on the Japanese stock market today and indeed all this week,” said Maki Sawada, a strategist at Nomura Securities.

Pre-Market U.S. Stock Movers

Textainer Group Holdings Ltd (TGH) surged about +42% in pre-market trading after U.S. infrastructure investor Stonepeak agreed to buy the shipping container lessor for about $2.1 billion.

Harpoon Therapeutics Inc (HARP) soared over +40% in pre-market trading after announcing updated interim data from the Phase 1/2 trial of HPN328.

Generation Bio Co (GBIO) slumped more than -7% in pre-market trading after JMP Securities downgraded the stock to Market Perform from Outperform.

Salesforce Inc (CRM) fell over -1% in pre-market trading after Piper Sandler downgraded the stock to Neutral from Overweight.

Pinterest Inc (PINS) gained more than +2% in pre-market trading after Stifel upgraded the stock to Buy from Hold.

Walgreens Boots Alliance Inc (WBA) climbed over +3% in pre-market trading after JPMorgan upgraded the stock to Overweight from Neutral.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Monday - October 23rd

Cadence Design (CDNS), Brown&Brown (BRO), WR Berkley (WRB), Packaging America (PKG), Crown (CCK), Cleveland-Cliffs (CLF), Medpace Holdings (MEDP), Simpson Manufacturing (SSD), Hexcel (HXL), Crane (CR), Cadence Bancorp (CADE), Calix (CALX), Cathay (CATY), Bank of Hawaii (BOH), Agilysys (AGYS), Helix (HLX), Independent Bank Group (IBTX), Hope Bancorp (HOPE), KKR Real Estate (KREF), HealthStream (HSTM), Dynex Capital (DX), Hbt Fin (HBT), TrustCo Bank NY (TRST), TrueBlue (TBI), Washington Trust (WASH), SmartFinancial Inc (SMBK), Northeast Bancorp (NBN), Aaron’s (AAN), Bank of Marin (BMRC), RBB Bancorp (RBB), Mainstreet Bank (MNSB), Acme United (ACU).

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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.