Contracts on the S&P 500 and Nasdaq 100 reversed slight gains, trading little changed as Wall Street recovered from a $2 trillion selloff. Early results on Tuesday were mixed, with shares of United Parcel Service Inc., Lockheed Martin Corp., and General Motors Co. rising in premarket trade following earnings beats. PepsiCo Inc. fell after reporting lower volumes in North America, as did MSCI Inc., Invesco Ltd., and Philip Morris International Inc.
The “Magnificent Seven” cohort of tech megacaps, led by Tesla Inc., will report first after today’s market closure. On Wednesday, Meta Platforms Inc. will be followed by Microsoft Corp. and Alphabet Inc. on Thursday, respectively.
Earnings will remain at the forefront of investors’ concerns this week, with over 180 businesses releasing results, accounting for more than 40% of the S&P 500 market value. The emphasis on corporate profitability follows a sell-off spurred by geopolitical anxieties, indicating that the Federal Reserve will not decrease interest rates quickly.
“Whether markets see further consolidation from here is likely to depend on the assessment of the sustainability of AI demand ahead of earnings releases,” said Eddie Cheung, a senior analyst at Credit Agricole CIB.
The Stoxx Europe 600 index rose 0.7%, with the technology sector driving the increase. SAP SE increased more than 4% as demand for artificial intelligence surged, boosting the German software company’s growth. Novartis AG gained up to 5% after raising its full-year outlook.
On Tuesday, PMI statistics supported Europe’s upbeat attitude. Private-sector activity reached its highest level in over a year, boosted by a strong services sector and Germany’s return to growth. A rate drop in June is “fait accompli,” according to European Central Bank Vice President Luis de Guindos, assuming no economic shocks.
“We remain focused on the current earnings season, which could re-focus investor attention on solid underlying fundamentals,” Citigroup Inc. analysts Mihir Tirodkar and Beata Manthey said in a note. “We would view the recent pullback as a buying opportunity.”
Treasury rates climbed ahead of a flurry of bond auctions, which will put investors’ appetite to the test after yields reached their highest point in 2024. The greenback’s value remained stable.
Gold continued losses following its worst daily drop in almost two years, as easing tensions in the Middle East and signals that the Fed would keep interest rates higher for longer restrict demand. Oil prices fell as traders pondered the next moves between Israel and Iran despite hints of softening animosity following a tit-for-tat exchange last week.
The difficulty for S&P 500 returns is that corporations must provide profits and outlooks that justify the existing high multiples. According to Bloomberg Intelligence, the Magnificent Seven’s profits are expected to increase 38% in the first quarter compared to the same period last year, dwarfing the broader S&P 500’s 2.4% expected year-over-year earnings growth.
However, eliminating Nvidia, the leading chipmaker in AI technology, the group’s predicted net income increase drops to 23%. Nvidia, which Goldman Sachs Group Inc.’s trading desk named “the most important stock on planet Earth,” won’t disclose profits for another month.
According to Deutsche Bank AG strategists, investor positioning on megacap growth and technology companies has continued to fall, from the 97th percentile in early March to the 77th percentile today. According to the strategists, the group is the only sector with above-average positioning, but no longer severe.