Optimism About Tech Earnings, Rate Cut May Lead To Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Monday, with stocks likely to add to the strong gains posted last Friday.

Optimism ahead of the release of earnings news from several major technology companies may contribute to early strength on Wall Street.

Microsoft (MSFT), Meta Platforms (META), Apple (AAPL) and Amazon (AMZN) are among the companies due to report their quarterly results this week.

The markets may also continue to benefit from optimism about the outlook for interest rates ahead of the Federal Reserve’s monetary policy meeting this week.

While the Fed is widely expected to leave interest rates unchanged, traders will be looking to the accompanying statement to increase confidence about a rate cut in September.

According to CME Group’s FedWatch Tool, there is currently an 89.6 percent chance the Fed will lower rates by a quarter point in September and a 10.1 percent chance of a half point rate cut.

Later in the week, the focus is likely to shift to the Labor Department’s closely watched monthly jobs report for July.

Following the mixed performance seen in Thursday’s session, stocks moved sharply higher during trading on Friday. The major averages all showed strong moves to the upside, with the Nasdaq and the S&P 500 bouncing off their lowest closing levels in over a month.

The major averages ended the day off their best levels of the session but still firmly in positive territory. The Dow surged 654.27 points or 1.6 percent to 40,589.34, the Nasdaq shot up 176.16 points or 1.0 percent to 17,357.88 and the S&P 500 jumped 59.88 points or 1.1 percent to 5,459.10.

For the week, the Dow advanced by 0.8 percent, but the S&P 500 slid by 0.8 percent and the Nasdaq slumped by 2.1 percent.

The strength on Wall Street came as the release of closely watched inflation data by the Commerce Department added to confidence about an interest rate by the Federal Reserve in September.

The Commerce Department said its personal consumption expenditures (PCE) price index inched up by 0.1 percent in June after coming in unchanged in May. The uptick by the index matched expectations.

The report also said the annual rate of growth by the PCE price index slowed to 2.5 percent in June from 2.6 percent in May. The slowdown in year-over-year growth also met estimates.

Meanwhile, the Commerce Department said the core PCE price index, which excludes food and energy prices, rose by 0.2 percent in June after inching up by 0.1 percent in May. Economists had expected another 0.1 percent uptick.

The annual rate of growth by the core PCE price index was unchanged from the previous month at 2.6 percent in June, while economists had expected the pace of growth to slow to 2.5 percent.

“The subdued rise in prices will give the Federal Reserve greater confidence that inflation is on track to moderate toward its 2% target,” said Michael Pearce, Deputy Chief U.S. Economist at Oxford Economics.

He added, “While we are not expecting the news to be quite as good in coming months, we think it would take a nasty upward surprise to inflation between now and September to derail the Fed from cutting rates at that meeting.”

The readings on inflation, which are said to be preferred by the Federal Reserve, were included in the Commerce Department’s report on personal income and spending.

The report showed personal income rose by less than expected, while personal spending increased in line with economist estimates.

The University of Michigan also released revised data showing consumer sentiment in the U.S. deteriorated by slightly less than previously estimated in the month of July.

The report said the consumer sentiment index for July was upwardly revised to 66.4 from the preliminary reading of 66.0. Economists had expected the reading to be unrevised.

Despite the upward revision, the consumer sentiment index for July is still down from 68.2 in June and marks the lowest reading since November 2023.

Housing stocks turned turn in some of the market’s best performances on the day, with the Philadelphia Housing Sector Index soaring by 3.2 percent to a record closing high.

Substantial strength also emerged among telecom stocks, as reflected by the 2.6 percent surge by the NYSE Arca North American Telecom Index.

Semiconductor and networking stocks also saw considerable strength, contributing to the jump by the tech-heavy Nasdaq.

Commercial real estate, transportation and steel stocks also showed notable moves to the upside amid broad based strength on Wall Street.

Commodity, Currency Markets

Crude oil futures are falling $0.29 to $76.87 a barrel after tumbling $1.12 to $77.16 a barrel last Friday. Meanwhile, after jumping $27.50 to $2,381.00 an ounce in the previous session, gold futures are rising $8.40 to $2,389.40 an ounce.

On the currency front, the U.S. dollar is trading at 153.88 yen versus the 153.76 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0817 compared to last Friday’s $1.0856.

Asia

Asian stocks advanced on Monday, tracking a broad rally on Wall Street Friday as soft inflation data bolstered hopes of more interest rate cuts his year.

Investors also looked ahead to the release of mega-cap U.S. tech earnings and central bank policy meetings in the United States, Japan and the U.K. for directional cues.

The dollar started the week on a weak note, while oil and gold prices rose on signs of escalating tensions in the Middle East.

The U.S. Federal Reserve will wrap up its policy meeting on Wednesday and the policy statement may provide clarity on whether there will be a rate cut in September. This week also brings U.S. jobs data on Friday.

China’s Shanghai Composite Index ended marginally higher at 2,891.85 ahead of July PMI data due this week. Hong Kong’s Hang Seng Index climbed 1.3 percent to 17,238.24 after data showed Chinese industrial profits experienced accelerated growth in June.

Japanese markets led regional gains ahead of a Bank of Japan policy meeting on Wednesday, where a rate hike may be on the table.

The Nikkei 225 Index closed 2.1 percent higher at 38,468.63 in a broad-based rally, rising for the first time in nine sessions. The broader Topix Index surged 2.2 percent to finish at 2,759.67.

Chip-related shares such as Tokyo Electron and Advantest shot up around 4 percent each, while AI-focused startup investor SoftBank Group added 2.3 percent. Silicon wafer maker Shin-Etsu Chemical soared 8.6 percent after first quarter earnings beat expectations.

Eisai lost almost 13 percent after the European Union regulator rejected an Alzheimer’s therapy jointly developed with Biogen Inc.

Seoul stocks rallied to end higher for a second day running on hopes the Fed will hint at a potential rate cut in September this week. The Kospi jumped 1.2 percent to 2,765.53.

Chipmaker SK Hynix gained 2 percent, carmaker Hyundai Motor surged 4.9 percent and auto parts maker Hyundai Modis climbed 1.1 percent.

Australian markets posted strong gains ahead of the release of key domestic inflation data for the second quarter on Wednesday. The benchmark S&P/ASX 200 Index advanced 0.9 percent to 7,989.60, while the broader All Ordinaries Index ended up 0.9 percent at 8,224.30.

Tech stocks logged solid gains, with Wisetech Global, Life360 and Macquarie Technology adding 2-3 percent.

Star Entertainment Group spiked 14.7 percent to a four-month high after reports that four international bidders had been circling in the past two months.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index slipped 0.3 percent to 12,313.62.

Europe

European stocks are turning in a mixed performance on Monday as signs of escalating tensions in the Middle East offset hopes for more interest rate cuts from the Federal Reserve this year.

Investors also awaited the release of mega-cap U.S. tech earnings and central bank policy meetings in the United States, Japan and the U.K. this week for directional cues.

While the French CAC 40 Index is down by 0.5 percent, the German DAX Index is up by 0.2 percent and the U.K.’s FTSE 100 Index is up by 0.8 percent.

Dutch medical devices maker Philips has moved sharply higher after its second quarter results exceeded analysts’ estimates.

Oil & gas giant BP Plc and Shell have also moved to the upside on fears of a wider Middle East conflict.

The Middle East braced for a potential flare-up in violence after Israeli authorities said a rocket from Lebanon struck a soccer field in the Israeli-controlled Golan Heights, killing 12 children and teens in what the military called the deadliest attack on civilians since Oct. 7.

GSK has also advanced after its RSV Vaccine Arexvy received EU recommendation for use in adults aged 50 to 59.

Stabilus shares have also surged in Paris. The supplier of motion control solutions confirmed its FY24 outlook after third-quarter profit rose to 24.3 million euros from 21.7 million euros last year.

Merck has also rallied after the German maker of pharmaceuticals, lab gear and specialty chemicals raised its forecast for the group.

Meanwhile, consumer goods company Reckitt Benckiser has plunged amid concerns about potential litigation after a U.S. jury found that infant formula by Abbott Laboratories had caused a girl to develop a dangerous bowel disease.

Brewer Heineken NV has also slumped after missing half-year estimates, while conglomerate Thyssenkrupp has fallen after lowering its 2024 outlook.

U.S. Economic News

No major U.S. economic data is scheduled to be released today.

Stocks In Focus

Shares of Revvity (RVTY) are moving sharply higher in pre-market trading after the biotechnology company reported second quarter results that exceeded analyst estimates on both the top and bottom lines.

Cloud computing company Akamai Technologies (AKAM) is also likely to move to the upside after Guggenheim upgraded its rating on the company’s stock to Buy from Neutral.

On the other hand, shares of Stellantis (STLA) may come under pressure after Deutsche Bank downgraded its rating on the automaker’s stock to Hold from Buy.

Pharmaceutical giant Bristol Myers Squibb (BMY) may also move to the downside after Barclays downgraded its rating on the company’s stock to Underweight from Equal Weight.