4:09pm: Report of Apple hiring slowdown startles markets
The Dow Jones Industrials Average closed down 217 points, or 0.7%, on Monday to end at 31,072, while the Nasdaq Composite lost 92 points, or 0.8%, to 11,360 and the S&P 500 shed 32 points, or 0.8%, to 3,831.
The major US benchmarks all gave up early session gains. The Dow, for example, was up more than 350 points on Monday morning.
One factor that spooked investors may have been a Bloomberg article published Monday afternoon reporting that Apple Inc (NASDAQ:AAPL) plans to slow hiring and spending growth next year in some divisions in response to a potential economic slowdown, citing people with knowledge of the matter.
“When Apple, a $2.4 trillion dollar company market cap-wise, rolls over, it’s obviously going to have a pronounced impact on the headline indices and it just reminds people that companies are buckling down because of what they’re seeing out there,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group, as reported by CNBC.
12.05pm: Inflation and rate rise concerns ease
US stocks remained in positive territory at noon buoyed by better-than-expected earnings from financial services giants Goldman Sachs (NYSE:GS) and Bank of America.
At midday, the Dow Jones Industrial Average had added 197 points at 31,485 points, while the S&P 500 had added 32 points at 3,896 points and the Nasdaq Composite was up 163 points at 11,616 points.
OANDA senior market analyst Craig Erlam said that stock markets were making punchy gains in spite of the months that lie ahead.
“I’ll caveat this with the fact that stock markets are severely discounted compared to earlier this year and not everyone is sold on the inevitability of a recession, or a particularly deep one, but what we saw on Friday just doesn’t reflect anything worth getting overly excited about,” Erlam said.
“Better-than-expected earnings from Goldman Sachs (NYSE:GS) and Bank of America may be helping the positive mood at the start of the week, although I think it's way too early to be looking at earnings season as a tailwind for equities.”
IG chief market analyst Chris Beauchamp said, after rallying into the end of last week, some slowdown had been anticipated, but Goldman Sachs (NYSE:GS)' beat had delivered more good news for the market to pin its hopes on as concerns about inflation and rate rises eased off.
“This bounce has all the characteristics of a bear market rally, surging for a time before wilting, but for now the buyers have the upper hand,” he said.
Beauchamp noted that the potential for a severe disruption to European gas supplies was the major headache right now. “Although it is far from clear why Russia would play this card and leave itself out of options to influence European governments,” he said.
11am: Proactive North America healdines
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9.35am: Earnings season heats up
US stocks opened higher on Monday as investors digested big bank earnings released before the bell ahead of a slew of other key corporate reports due this week including Netflix Inc (NASDAQ:NFLX), Tesla Inc (NASDAQ:TSLA), and Twitter Inc (NYSE:TWTR).
Just after the open, the Dow Jones Industrial Average had gained 270 points at 31,559 points, while the S&P 500 was up 30 points at 3,893 points and the Nasdaq Composite had added 109 points at 11,561 points.
The Goldman Sachs (NYSE:GS) Group Inc was up about 4.5% just after the open following the release of its 2Q earnings where the company posted a profit exceeding the market expectation, despite falling 48% to $7.73 per share. The financial services company reported revenue of $11.86 billion, a full billion above the consensus analyst expectation of $10.86 billion.
Bank of America Corporation was up about 2.8% after the bank posted a 34% drop in its profits and an earnings miss, clocking in at 73 cents per share compared to the 75 cents per share expected by market analysts.
Forex.com financial market analyst Fiona Cincotta said US stocks were headed for a stronger start, extending gains from the end of last week as investors looked ahead to a busy week for earnings.
"Despite the move higher, recession fears remain high, and this is more likely a bear market rally rather than a deeper fundamental change in the direction of the market," Cincotta said.
6:30am: Corporate earnings to set the tone
US stocks were expected to open higher on Monday as the corporate earnings season enters a second week, with Goldman Sachs (NYSE:GS), Bank of America, and IBM among the companies scheduled to make announcements today, followed by Tesla and Twitter later in the week.
Futures for the Dow Jones Industrial Average were trading 0.8% higher pre-market, while those for the broader S&P 500 index were up 0.9% and futures for the tech-laden Nasdaq-100 added 1.2%.
The earnings deluge comes amid concerns over how aggressive the Federal Reserve will need to be to tame inflation - which is at 40-year highs - without throwing the economy into recession.
Traders will therefore be keeping an eye on economic data points, with June US housing starts and building permits expected to be announced on Tuesday, followed by existing home sales on Wednesday.
Swissquote Bank senior analyst Ipek Ozkardeskaya said the market is poised to begin the week on a positive note after rebounding strongly last Friday on the back of upbeat economic data that showed consumers continuing to spend in June.
“The good news is that the week starts with improved odds of seeing a 75bp hike at the next FOMC meeting, rather than a 100bp hike,” Ozkardeskaya said.
“The probability of a 75bp hike is back to 70%, up from around 20% following the scary inflation report that was released last week in the US,” she noted, referring the 9.1% annual inflation reading for June released last Wednesday.
However, investors will remain focused on earnings this week to determine which companies are in a better position than others to weather the challenging macroeconomic environment, as well as rising interest rates, she said.
In energy markets, traders betting that oil prices will remain elevated are providing support, taking advantage of the sell-off last week to send WTI crude oil futures 1.9% higher at $99.45 a barrel, and Brent crude futures 2.1 % firmer at $103.31.
“Crude oil prices continue to remain unfazed by (US President Joe) Biden’s visit to Saudi Arabia,” said AvaTrade chief market analyst Naeem Aslam. “Traders got one clear message from Biden’s recent visit to Saudi Arabia … the message is that it is OPEC+ that makes the oil supply decision, and the cartel isn’t remotely interested in what Biden is trying to achieve.
“OPEC+ will continue to control oil supply, and one country alone cannot determine the oil supply - at least that is the message that traders have taken from Biden’s visit to Saudi Arabia,” Aslam added.
Contact the author at jon.hopkins@proactiveinvestors.com