U.S. futures started the week on a subdued note as investors braced themselves for significant events, including the Federal Reserve’s crucial rate decision and the release of major tech companies’ earnings. The S&P 500 continued its record-breaking streak, achieving an intraday high for four consecutive sessions and marking its fifth all-time closing high this month. Despite a sluggish start in 2023, the index gained momentum as investors reconsidered their positions regarding the timing of rate cuts.
While the moderation in U.S. prices brought relief to investors on Friday, Intel’s gloomy first-quarter revenue outlook dampened enthusiasm, leading the S&P 500 and Nasdaq to close lower. The spotlight now shifts to mega-cap earnings, especially after disappointing forecasts from Intel and Tesla raised concerns about the overvaluation of momentum stocks that surged at the end of the previous year.
Major companies such as Microsoft, Alphabet, Apple, Meta Platforms, Amazon.com, Exxon Mobil, Chevron, Qualcomm, Merck, Pfizer, and Boeing are set to report earnings this week. Larry Adam, Chief Investment Officer of the Private Client Group, warned of potential increased volatility if the big tech names disappoint.
“With the market at record highs and valuations near the upper end of its range over the last 20 years, any disappointments from the MAGMAN (big tech) names will likely lead to increased volatility over the coming weeks,” said Adam.
Despite a lowered bar, the start of 4Q23 earnings has been lackluster, with the percentage of companies beating expectations on both the top and bottom line below the historical average. Recent data suggesting a resilient economy and decreasing inflation have fueled hopes of a Goldilocks scenario – an economy not too hot or cold. The focus this week turns to the first U.S. monetary policy decision of the year, expected on Wednesday.
Crucial job reports, including JOLTS and the ADP National Employment, will be closely scrutinized before the Fed’s policy decision for insights into the strength of the U.S. labor market. Traders’ bets currently indicate expectations of rate cuts in June, with some anticipating cuts as early as March.
As of 5:40 a.m. ET, Dow e-minis were down 29 points, S&P 500 e-minis were up 1 point, and Nasdaq 100 e-minis were up 34.5 points. Intel marginally rose in premarket trade after a near 12% slide on Friday, while Tesla aimed for a second day of recovery, up 1.1% after Thursday’s slump. Other chip stocks, including Broadcom, Advanced Micro Devices, and Nvidia, rebounded between 0.7% to 1.2% following steep losses last week.
