Market Outlook
Following the Federal Reserve’s move to increase the federal funds rate to between 5.25% and 5.50% yesterday, stock futures are exhibiting an optimistic trend this morning. This rise comes on the back of market expectations that the Fed is likely to put a pause on further rate increases.
The upbeat mood in the market this morning is, in part, attributable to the significant gains made by Meta Platforms (META). After reporting better-than-anticipated earnings and revenue, and an increase in their FY23 guidance, the company’s shares saw a marked surge. Other mega-cap companies are also trading higher in pre-market action, providing a fillip to Nasdaq 100 futures.
The Fed’s move has not been confined to the U.S. alone. The Hong Kong Monetary Authority has mirrored the move with a 25-basis point rise in its base rate to 5.75%. The European Central Bank is also projected to announce a similar increase this morning.
In terms of Treasury yields, there is little change from yesterday’s closing levels. The 2-year note yield stands unchanged at 4.83%, while the 10-year note yield has marginally increased by two basis points to 3.87%.
Economic Data to Monitor Today
For market participants, today brings a slew of economic data:
- 8:30 ET: Advance Q2 GDP (Briefing.com consensus 1.6%; prior 2.0%), advance Q2 GDP Deflator (Briefing.com consensus 3.0%; prior 4.1%), Weekly Initial Claims (Briefing.com consensus 233,000; prior 228,000), Continuing Claims (prior 1.754 mln), June Durable Orders (Briefing.com consensus 1.0%; prior 1.7%), Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior 0.6%), June advance goods trade deficit (-$91.1 bln), June advance Retail Inventories (prior 0.8%), and June advance Wholesale Inventories (prior -0.1%)
- 10:00 ET: June Pending Home Sales (Briefing.com consensus 0.3%; prior -2.7%)
- 10:30 ET: Weekly natural gas inventories (prior +41 bcf)
Corporate Highlights
Meta Platforms (META)
After exceeding expectations on both earnings and revenue, Meta’s shares (META 325.23, +26.66, +8.9%) have seen a significant uptick. The company has also increased its Q3 revenue guidance above consensus and upgraded its FY23 expense guidance while reducing capital expenditure guidance. Wells Fargo has subsequently upgraded Meta from Equal Weight to Overweight. The company is banking on riding the AI wave in the short term and shifting to the metaverse in the longer term.
Southwest Airlines (LUV)
Southwest Airlines reported in-line EPS and revenue, resulting in a slight dip in their shares (LUV 33.84, -2.42, -6.7%).
Chipotle Mexican Grill (CMG)
Despite beating earnings estimates by $0.34, Chipotle Mexican Grill (CMG 1910.59, -177.27, -8.5%) reported a slight miss on revenue. However, Q2 comps were in-line with prior guidance and the company remains on track to open 255-285 new restaurants this year.
ServiceNow (NOW)
ServiceNow’s shares (NOW 569.00, -8.27, -1.4%) experienced a slight drop, even though the company beat earnings estimates by $0.32 and reported in-line revenues. They have partnered with NVIDIA (NVDA) and Accenture (ACN) to launch AI Lighthouse, a program designed to accelerate the development and adoption of enterprise generative AI capabilities.
Lam Research (LRCX)
Lam Research (LRCX 665.66, +23.29, +3.6%) shares are up after beating earnings estimates by $0.91 and reporting higher than expected revenue. Their guidance for Q1 EPS is also in line with expectations.
Other Companies
Other notable companies reporting earnings include eBay, Align Tech, Comcast, Northrop Grumman, Honeywell, McDonald’s, and Netflix. Each of these companies has reported a mixture of results, with some beating on both revenues and earnings while others were either in-line or slightly missed expectations.
Global Market Update
US technology shares are well-positioned for a solid opening with Nasdaq 100 futures climbing more than 1%. Investors are betting that the Federal Reserve has concluded its 16-month long policy-tightening cycle. An array of earnings beats from high-profile companies is fueling the bullish momentum, with Facebook parent Meta Platforms Inc. (META) surging 9% in premarket trading after issuing forecast-beating results and revenue forecasts. Chipmakers also advanced, led by Micron Technology Inc., which showcased its development of high-bandwidth memory products.
Europe’s Stoxx Europe 600 index climbed 1% to a two-month high, buoyed by earnings beats from a diverse range of companies, including BNP Paribas SA, Nestle SA, and Carrefour SA. The moves follow the Fed’s decision yesterday to increase the federal funds rate to a 22-year high.
Despite signaling further hikes could be data dependent, many investors reckon the Fed has finished hiking interest rates. They have pared down bets on more hikes this year, as Fed Chair Jerome Powell pointed to signs that higher borrowing costs are curbing price pressures. Meanwhile, the European Central Bank’s anticipated 25-basis-point rate hike later today could be one of its final actions this cycle.
“There is belief that the Fed is probably done,” according to Timothy Graf, head of EMEA macro strategy at State Street Bank & Trust Co. “Markets are also seeing a US economy that’s held up far better than the consensus outlook. They are pricing that we have achieved a landing that everyone thought would be impossible to achieve.”
On the other hand, the dollar is having its third straight day in the red, with the euro strengthening 0.4%, while the yen is up for a fourth day as traders gear up for the risk of hawkish guidance at Friday’s Bank of Japan’s meeting.
The US economy’s signs of a soft landing have prompted stocks to surge. The Dow Jones Industrial Average climbed for a 13th straight session on Wednesday, marking its longest winning streak since 1987. Oil has followed the broader advance in markets, adding almost 1%.
Today’s release of the US second-quarter gross domestic product data is forecasted to show a 1.8% expansion, a slight slowdown from the previous quarter. Core PCE price index, personal consumption, and jobless claims figures are also due.
