Market Outlook

With earnings season upon us, DJIA futures have soared in response to encouraging financial reports from key players. JPMorgan Chase and UnitedHealth Group’s impressive performances have paved the way for the positive trend, reflected in the equity futures pack this morning. Wells Fargo’s stronger-than-anticipated results are also fortifying the S&P 500 futures.

However, a less exuberant mood governs the broader market after a robust rally earlier this week. Anticipations of some profit-taking have emerged, yet sellers are treading lightly, aware of the continued readiness to buy on any dip. A sense of cautious optimism seems to be the order of the day in the pre-market environment.

Federal Reserve Expectations

In related news, Federal Reserve Governor Waller, an FOMC voter, has indicated that his stance aligns with two additional rate hikes in the upcoming four FOMC meetings. He sees no obstacles to the first of these hikes taking place in the July FOMC assembly.

Economic Reports

Two key economic reports are due for release today. The June Import-Export Price Index will be unveiled at 8:30 a.m. ET, while the Preliminary July University of Michigan Consumer Sentiment Index is set for 10:00 a.m. ET.

Bond and Currency Markets

In the bond market, the 2-year note yield has risen two basis points to 4.63%, while the 10-year note yield is up one basis point at 3.77%. The U.S. Dollar Index is also marking a slight uptick of 0.1%, standing at 99.83.

Corporate News

A flurry of corporate news has surfaced:

• JPMorgan Chase: Outperforming expectations with earnings and revenues, excluding First Republic, the provision was $1.7 billion, reflecting net charge-offs of $1.4 billion and a net reserve build of $326 million.
• UnitedHealth: Beat earnings and revenue estimates and raised FY23 EPS, although the medical care ratio for Q2 2023 was 83.2% compared to 81.5% last year.
• Wells Fargo: Surpassed earnings and revenue forecasts, with net interest income expected to grow 14% year-on-year in 2023, up from a prior estimate of 10%.
• Microsoft: Upgraded to “Buy” from “Neutral” by UBS; the UK regulator has extended its probe of the Activision deal by six weeks.
• Meta Platforms: Threads engagement has reportedly declined since its debut, as per CNBC.
• AT&T: Downgraded to “Neutral” from “Overweight” by JPMorgan.
• BlackRock: Surpassed earnings estimates, with revenues in line with expectations and a $831 billion increase in AUM since the end of 2022.
• Leslie’s, Inc.: Downgraded Q3 EPS and revenue outlooks due to declining traffic in Residential and Pro businesses; CFO Steve Weddell is stepping down, to be succeeded by Scott Bowman effective August 7.

Global News

Internationally, Chinese officials are pushing back against deflationary risk speculations for the latter half of 2023. The Bank of Japan is expected to increase its FY23/24 inflation forecast above 2.0%, leading to speculation of a potential shift in its yield curve control policy.

In other news, workers at London’s Gatwick Airport have announced an eight-day strike, and the British government is expected to require GBP2-5 billion in 2023 and GBP3 billion in 2024 to fund a recently implemented pay hike for public sector workers.

Stock and Commodity Highlights

It’s been a bullish week, with emerging markets, global bonds, and the S&P 500 rallying, bolstered by optimism around the Federal Reserve’s fight against inflation. As earnings reports for the second quarter trickle in, MSCI’s global stock benchmark has jumped 3.5% in the past five days.

While S&P 500 and Nasdaq 100 futures remain relatively static, Microsoft and Activision Blizzard are looking to pacify regulators to complete their $69 billion merger. Nokia and Ericsson have posted disappointing financial guidance, while Partners Group Holding AG saw a rise in the first half of its assets under management.

In commodities, oil is eyeing a third consecutive weekly gain amid supply disruptions in Africa and a decrease in Russian shipments. Gold has also had an impressive week, on track for its best performance since April.

The Road Ahead

The future remains in focus as traders look toward upcoming earnings reports to fuel the current rally. Analysts will be keeping a close watch on corporate outlooks, as exceeding profit expectations is no longer the primary hurdle. As consensus expectations appear reasonable and valuations are already rich, the market response to even minor misses in earnings could trigger significant price fluctuations.

Moreover, an atmosphere of optimism prevails as the US economy seems to be on the cusp of a “Goldilocks scenario” – inflation cooling off, and a recession avoided. Even so, central bankers persist in their warning that more than one rate increase may be needed post the upcoming hike.

Despite the occasional mismatch between stock market performance and the underlying economic realities, there’s a growing confidence that the Fed’s inflation battle is turning a corner. However, it remains crucial for market participants to stay vigilant, as the journey through the tightening tunnel is far from over.