Monday April 18th


S&P 500 futures slip as rates hit new 3-year high, investors evaluate huge week of earnings

U.S. stock index futures declined Monday morning as the 10-year Treasury yield hit a new three-year high and a week of major first-quarter earnings reports kicked off. Futures on the Dow Jones Industrial Average lost 41 points, or 0.1%. S&P 500 futures shed 0.2%. Nasdaq futures were lower by 0.3%. The 10-year Treasury yield reached on Monday it highest level since late 2018, trading above 2.87% at one point. The yield was at 1.71% to begin March, but has shot higher as the Federal Reserve pivoted to a more aggressive tightening stance. That change has weighed on stocks and triggered concerns about an impending recession. Shares of Big Tech companies including Amazon, Meta Platforms, Apple and Microsoft edged lower in early trading. Alphabet shares fell 2.3%. Fintech stocks led declines in premarket trading. Coinbase, PayPal and Block, formerly known as Square, each lost more than 1%. Tech stocks tend to fall as yields rise because growth-oriented companies are more likely to give investors higher returns in the distant future than in the near term. Didi shares lost 18.7% premarket after the Chinese ride-hailing company reported a 12.7% drop in fourth-quarter revenue. Other U.S.-traded Chinese stocks posted significant premarket losses as well. The KraneShares CSI China Internet ETF was down by 1.8%. Meanwhile, Bank of America reported quarterly results Monday showing a 13% year-over-year drop in earnings per share, though the results were slightly higher than expected. The stock gained 1.3% in the premarket. Several Dow blue-chip names report earnings this week, including IBM, Procter and Gamble, Travelers, Dow Inc, Johnson and Johnson, American Express and Verizon. Technology bellwethers are also set to report quarterly earnings, with Netflix due on Tuesday and Tesla out on Wednesday. Snap reports Thursday. United Airlines, American Airlines and Alaska Air are also on the calendar, as are railroads CSX and Union Pacific. Investors will be paying close attention to forward guidance, especially for comments on how companies are handling surging costs. March’s consumer price index reading released last week showed an 8.5% increase from a year ago, the fastest annual gain since December 1981. “The odds seem to be long against underlying inflation moderating to an acceptable pace without a significant deceleration of demand growth,” 22V Research’s Gerard MacDonell said in a note Sunday. Earnings season is off to a decent start with 81.5% of S&P 500 companies reporting earnings per share above expectations according to FactSet. About 7.5% of the benchmark has reported results so far and analysts believe first-quarter earnings will jump 5.3% for the quarter when all S&P 500 companies finish reporting, according to FactSet’s analysis of actual results and future estimates. Morgan Stanley analysts say earnings reports for the first quarter could end up being more disappointing that expected. “Earnings revisions breadth for the S&P 500 has resumed its downtrend over the past two weeks and is once again approaching negative territory,” the firm’s equity strategist Michael Wilson said in a note Monday. “The Morgan Stanley Business Conditions Index (a survey of our industry analysts) fell to its lowest level since April of 2020, and margin expectations look overly optimistic for the balance of ’22 given the myriad of cost pressures companies face.” Despite some better-than-expected results so far, investors sold stocks last week as they feared higher rates and inflation could darken the outlook for earnings. The S&P 500 fell 2.13% for its second negative week in a row. The Nasdaq Composite lost 2.63%, and the Dow fell 0.8% on the period. U.S. stocks did not trade Friday due to the holiday weekend. Elsewhere, Twitter shares were up 2.7% in the premarket at about $46.09 per share. The move comes after Twitter announced Friday that the board adopted a limited duration shareholder rights plan, often referred to as a “poison pill.” The move comes after billionaire Elon Musk offered to buy the company for $43 billion. Asia markets struggled for direction on Monday, with investors reacting to the release of Chinese economic data, including first-quarter gross domestic product figures. In Japan, the Nikkei 225 fell 1.08% to close at 26,799.71 as shares of Fast Retailing declined 1.25%. The Topix index shed 0.86% to 1,880.08. Mainland Chinese stocks closed mixed, with the Shanghai composite down 0.49% to 3,195.52 and the Shenzhen component climbing 0.368% to 11,691.47. South Korea’s Kospi declined 0.11% on the day to 2,693.21. Oil prices were steady after climbing to nearly three-week highs on Monday as fears over tight global supply grew, with the deepening crisis in Ukraine raising the prospect of heavier sanctions by the West on top exporter Russia. Brent futures hit a session high of $113.80 per barrel, a level not seen since March 30, before trading at $111.33. U.S. West Texas Intermediate futures also reached their highest level since March 30, hitting $108.55 per barrel. WTI was last little changed at $106.49. Ahead of Easter weekend holidays, both contracts gained more than 2.5% on Thursday on news that the European Union might phase in a ban on Russian oil imports. Gold prices jumped about 1% to a more than one-month high on Monday as concerns over the economic fallout from the Russia-Ukraine war and surging inflation drove investors to the safe-haven asset. Spot gold rose 0.9% to $1,991.51 per ounce by 7:47 a.m ET, after hitting its highest level since March 11. U.S. gold futures gained 1% to $1,995.30.