Earnings Optimism May Generate Early Buying Interest

The major U.S. index futures are currently pointing to a higher open on Monday, with stocks likely to move back to the upside following the pullback seen over the two previous sessions.

The upward momentum on Wall Street may reflect optimism about the strength of corporate results as earnings season starts to pick up steam.

Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ), Morgan Stanley (MS), Procter & Gamble (PG), Netflix (NFLX), Tesla (TSLA), AT&T (T) and American Express (AXP) are among the companies due to report their quarterly results this week.

Overall trading activity may be somewhat subdued, however, as traders also await the release of reports on retail sales, industrial production, housing starts and existing home sales.

Uncertainty about the conflict in the Middle East may also keep some traders on the sidelines, with Israel purportedly planning a full-scale invasion of the Hamas-controlled Gaze Strip.

Stocks moved mostly lower over the course of the trading on day on Friday, extending the pullback seen during Thursday’s session. The tech-heavy Nasdaq showed a steep drop on the day, while the Dow managed to close modestly higher.

The Nasdaq tumbled 166.98 points or 1.2 percent to 13,407.23 and the S&P 500 slid 21.83 points or 0.5 percent to 4,327.78. Meanwhile, the narrower Dow inched up 39.15 points or 0.1 percent to 33,670.29.

The major averages also turned in a mixed performance for the week. While the Nasdaq dipped by 0.2 percent, the S&P 500 rose by 0.5 percent and the Dow climbed by 0.8 percent.

Selling pressure emerged following the release of a report from the University of Michigan showing a slump in consumer sentiment and a surge in inflation expectations.

The University of Michigan said its consumer sentiment index tumbled to 63.0 in October from 68.1 in September, while economists had expected the index to edge down to 67.4.

“Assessments of personal finances declined about 15%, primarily on a substantial increase in concerns over inflation, and one-year expected business conditions plunged about 19%,” said Surveys of Consumers Director Joanne Hsu.

The report also showed a sharp increase in year-ahead inflation expectations, which jumped to 3.8 percent in October from 3.2 percent in September, reaching the highest level since May.

Long-run inflation expectations also rose to 3.0 percent in October from 2.8 percent in September but remained within the narrow 2.9-3.1 percent range seen for 25 of the last 27 months.

The data generated some negative sentiment, although a decrease in treasury yields helped to limit the downside.

Traders also reacted positively to earnings news from financial giant JPMorgan Chase (JPM), which moved to the upside after reporting better than expected third quarter revenue.

Fellow Dow component UnitedHealth (UNH) also jumped after reporting third quarter results that exceeded analyst estimates, contributing to the uptick by the Dow.

Semiconductor stocks led the technology sector lower on the day, with the Philadelphia Semiconductor Index plunging by 2.7 percent.

Significant weakness was also visible among networking stocks, as reflected by the 1.8 percent loss posted by the NYSE Arca Networking Index.

Transportation, computer hardware and software stocks also saw notable weakness, while gold stocks moved sharply higher along with the price of the precious metal.

With gold for December delivery soaring $4.55 to $86.35 a barrel, the NYSE Arca Gold Bugs Index spiked by 4.6 percent.

A surge by the price of crude oil also contributed to strength among energy stocks, with the NYSE Arca Oil Index and the Philadelphia Oil Service Index jumping by 2.1 percent and 1.8 percent, respectively.

Commodity, Currency Markets

Crude oil futures are climbing $0.56 to $88.25 a barrel after soaring $4.78 to $87.69 a barrel last Friday. Meanwhile, after spiking $58.50 to $1,941.50 an ounce in the previous session, gold futures are edging down $6.40 to $1,935.10 an ounce.

On the currency front, the U.S. dollar is trading at 149.44 yen versus the 149.57 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0534 compared to last Friday’s $1.0510.

Asia

Asian stocks fell in cautious trading on Monday amid fears that the Israel-Hamas war could spark a wider conflict in the oil-rich region.

Israeli Prime Minister Benjamin Netanyahu’s office today denied reports of a ceasefire in Gaza that would enable aid to enter and foreigners to flee to Egypt, 10 days into the war with Hamas.

The dollar index was down slightly ahead of a slew of U.S. economic data and Federal Reserve Chairman Jerome Powell’s speech due this week.

Gold fell more than 1 percent after recent sharp gains, while crude prices were a tad lower after soaring nearly 6 percent on Friday.

Chinese shares closed lower after reports of tighter U.S. curbs on technology exports to China and ahead of GDP, retail sales and industrial production data due this week.

The downside remained capped after the People’s Bank of China ramped up liquidity support to shore up a wobbly economy. The central bank rolled over medium-term policy loans while keeping the interest rate unchanged.

China’s Shanghai Composite Index dropped 0.5 percent to 3,073.81, while Hong Kong’s Hang Seng Index slumped 1.0 percent to 17,640.36.

Japanese shares led regional losses as tensions in the Middle East escalated and investors looked ahead to the release of inflation data this week for directional cues.

The Nikkei 225 Index tumbled 2.0 percent to 31,659.03, while the broader Topix Index settled 1.6 percent lower at 2,273.54. Chip-related shares succumbed to selling pressure, tracking declines in the U.S. peers on Friday.

Advantest, Tokyo Electron and Screen Holdings lost 4-5 percent. Technology start-up investor SoftBank ended down a little over 2 percent.

Lawson rallied 2.3 percent and Ryohin Keikaku soared 8.9 percent on encouraging earnings news.

Seoul stocks ended notably lower, with the Kospi falling 0.8 percent to 2,436.24 following reports that Israel is preparing for a ground offensive into the Hamas-controlled Gaza Strip. Samsung Electronics, LG Energy Solution and LG Chem shed 1-3 percent.

Australian markets ended with modest losses as investors awaited the minutes of the Reserve Bank of Australia’s (RBA) October meeting, scheduled for Tuesday, to gauge the outlook for interest rates.

The benchmark S&P ASX 200 Index ended down 0.4 percent at 7,026.50, with tech stocks leading losses. The broader All Ordinaries Index slipped 0.4 percent to 7,214.60.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index fell 0.7 percent to 11,185.08 after the country elected a center-right government.

Fletcher Building shares plunged 11.6 percent despite the construction materials maker denying claims that plumbing failures reported in several homes in Australia were due to a manufacturing defect in the pipes it produced.

Europe

European stocks were subdued on Monday as investors fretted about escalating tensions in the Middle East and rising Treasury yields.

Israel’s Ambassador to the UN, Gilad Erdan said his country “has no interest” in occupying Gaza but will do “whatever is needed” to eliminate the Palestinian Hamas militant group that controls the densely populated coastal enclave.

Meanwhile, European government bond yields rose today after ECB officials reiterated concerns about inflation.

On a light day on the economic front, data from Destatis showed Germany’s wholesale prices declined at the fastest pace in more than three years in September.

Wholesale prices posted an annual fall of 4.1 percent in September largely due to a base effect originating from the large price increases in 2022 as a result of the war in Ukraine.

Prices have been falling since April 2023. The latest fall was the biggest since May 2020.

While the U.K.’s FTSE 100 Index has risen by 0.3 percent, the French CAC 40 Index is up by 0.1 percent and the German DAX Index is nearly unchanged.

Anglo American, Antofagasta and Glencore rose between 0.8 percent and 1.5 percent as base metal prices rose on optimism around demand from top consumer China.

Speaking over the weekend at the International Monetary Fund meeting in Morocco, People’s Bank of China Governor Pan Gongsheng said that authorities will provide more substantial support to the real economy.

Germany’s BioNTech fell almost 5 percent after saying it would likely take write-downs of up to 900 million euros ($947 million) in the third quarter.

Biopharma major GSK fell over 1 percent despite getting positive CHMP opinion for its Jemperli drug.

U.S. Economic Reports

A report released by the Federal Reserve Bank of New York on Monday showed a downturn in regional manufacturing activity in the month of October.

The New York Fed said its general business conditions index fell to a negative 4.6 in October from a positive 1.9 in September, with a negative reading indicating a contraction in activity. Economists had expected the index to drop to a negative 7.0.

Twenty-four percent of respondents reported that conditions had improved over the month, while twenty-nine percent reported that conditions had worsened, the New York Fed said.

Looking ahead, the index for future business conditions slipped to 23.1 in October from 26.3 in September, suggesting that firms remain relatively optimistic about future conditions.

At 10:30 pm ET, Philadelphia Federal Reserve President Patrick Harker is scheduled to speak on the economic outlook before the Mortgage Bankers Association Annual Convention & Expo.

Harker is also due to speak virtually on the economic outlook before the National Association of Corporate Directors Webinar at 4:30 pm ET.