S&P 500 Futures Fall as Traders Prepare for the Start of Earnings Season

S&P 500 futures falls
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Early on Monday, U.S. equity futures fell as Wall Street anticipated significant firm earnings announcements.

Dow Jones Industrial Average futures decreased by 104 points, or 0.33 percent. Nasdaq 100 futures dropped 0.6 percent, while S&P 500 futures dropped 0.44 percent.

Shares of Twitter dropped more than 6% in the premarket after Elon Musk called off a $44 billion proposal to acquire the social media giant. The billionaire argued that Twitter was not being realistic about how authentic activity on the network was due to the large amount of bots and false accounts on the site. The business asserted that it provided Musk all the data he needed to evaluate the claims, though.

Lower prices on Monday are a result of deteriorating Covid trends in China, where Shanghai has identified its first case of the BA.5 subvariant and Macau has shut down its casinos for a week.

Although COVID cases are increasing worldwide, the likelihood of lockdowns in the US and EU is still quite low, according to Vital Knowledge’s Adam Crisafulli. “COVID headwinds are not simply a Chinese phenomena.”

The Dow and S&P 500 both experienced small declines during the previous day on Wall Street, while the Nasdaq Composite increased for a sixth straight day. After a stronger-than-expected jobs data on Friday demonstrated that the economic slowdown investors are worried about has not yet occurred and added to optimistic sentiment, all of the major averages scored a winning week.

Even still, the 2-year Treasury yield increased relative to the 10-year yield, an inversion that many consider to be a sign of a coming recession. On Monday, the 2-year rate was 3.08 percent, or about 2 basis points more than the 10-year.

Although the markets ended the week in solid gains, Greg Bassuk, chief executive officer at AXS Investments, warned that investors should prepare for continued volatility in July due to looming uncertainties regarding inflation, Fed policy, concerns about a possible recession, and the ongoing Russia-Ukraine war as we also enter the corporate earnings season.

Although positive for the economy, the jobs report may give the Federal Reserve more confidence to maintain its aggressive rate increases in the months to come in order to combat stubbornly rising inflation. This week’s consumer inflation data and a wave of profits from major banks will put it to the test.

Investors are “hyper-focused on corporate results for more hints about the health of corporate America and the larger U.S. economy” because of recessionary fears, according to Bassuk.

A finer lens will be required to analyze these earnings reports, he continued, because a great second quarter can be accompanied with extremely pessimistic forecasts. Companies will consider how much of the rising costs of raw materials and other producer costs may be passed on to customers as well as how to maintain strong earnings in the face of significant economic, geopolitical, and other headwinds.

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