Market Outlook

Stock futures suggest a moderately higher opening as we head into another bustling week of corporate earnings. Notably, tech titans Apple (AAPL) and Amazon.com (AMZN), both trending upwards in pre-opening activity, are slated to announce their earnings after the market closes on Thursday. The spotlight will also be on some key economic data releases, notably the ISM Manufacturing and Non-Manufacturing Indexes and the July Employment Report.

After the weekend, Minneapolis Fed chair and Federal Open Market Committee (FOMC) member Neel Kashkari revealed in an interview with CBS News that he no longer anticipates a US recession, a noteworthy change in sentiment.

On the international front, China’s Manufacturing Purchasing Managers Index (PMI) remained in contraction in July, marking the fourth consecutive month of decline for the Non-Manufacturing PMI. In response, China plans to stimulate the economy by implementing measures to boost consumption, stopping short of direct consumer support, Bloomberg reports.

However, the only U.S. economic data due today is the July Chicago PMI (expected at 9:45 ET), which previously stood at 41.5.

In the bond market, the 2-yr Treasury note yield fell two basis points to 4.87%, and the 10-yr note yield fell one basis point to 3.96%.

Corporate News

In corporate happenings, several key events are worth highlighting:

1. Johnson & Johnson (JNJ): Following a US judge’s ruling against resolving talc claims in bankruptcy, the company’s shares dipped by 1.6%, according to Reuters.
2. Ford (F): The automaker plans to recall 870,000 F-150 trucks, which led to a 1.1% drop in its stock.
3. Wal Mart (WMT): The retail giant aims to invest $1.4 billion to buy out a significant investor in Flipkart, causing a marginal 0.1% increase in its stock price, as reported by the Wall Street Journal.
4. Hasbro (HAS): Bank of America has upgraded the company’s rating from Neutral to Buy, leading to a 3.4% jump in its shares.
5. Adobe (ADBE): The software giant was upgraded from Equal Weight to Overweight by Morgan Stanley, which translated into a 2.6% hike in its share price.
6. Carvana (CVNA): The online used-car dealer was downgraded from Hold to Underperform by Jefferies, causing a 0.7% fall in its shares.
7. Chevron (CVX): After Goldman Sachs upgraded the energy corporation from Neutral to Buy, the company’s shares rose by 1.6%.
8. Salesforce (CRM): Morgan Stanley downgraded the software company from Overweight to Equal-Weight, resulting in a 1.5% drop in its stock.

Global and Market Perspective

After a strong rally last week, the risk appetite of US equity futures appears to be cooling down. Investors paused after sending the Nasdaq 100 Index up more than 2% last week, taking a breather in the wake of significant earnings news. The yen weakened following the Bank of Japan’s first unscheduled bond purchases in months.

Investors are bracing for another busy week of earnings reports. Apple Inc. and Amazon.com Inc. are among the companies set to announce their earnings. Investors will also keep a close eye on key economic data, including the US July non-farm payrolls numbers due Friday, which may offer insights into the interest rate outlook. These data releases are a day ahead of a policy decision from the Bank of England.

Vivek Paul, a senior portfolio strategist at BlackRock Investment Institute, highlighted the need to understand whether the market is heading towards a “soft landing.” He suggested that the upcoming data would shed light on whether the cooling inflation is the start of a broader trend or will continue to be volatile.

In other stock news, Johnson & Johnson dipped in pre-market trading after a federal judge ruled that the company cannot use a subsidiary’s bankruptcy case to encourage cancer victims to drop lawsuits and accept an $8.9 billion settlement. Ford’s shares slipped after a downgrade at Jefferies, while MetLife Inc. gained after Bloomberg News reported that Singapore insurer Great Eastern Holdings Ltd. is in talks to buy the company’s Malaysian venture.

Japan’s Economic Move

In Japan, BOJ Governor Kazuo Ueda said on Friday that the central bank would allow 10-year bond yields to rise above a ceiling it now calls a point of reference. This move might pave the way for a future normalization of policy, potentially impacting global assets heavily exposed to Japanese money.

On Monday, the BOJ stepped in to buy the equivalent of more than $2 billion in bonds at market rates as yields spiked to a fresh nine-year high in morning trading. The 10-year yield subsequently fell back below 0.6%, and the yen reversed an advance against the dollar. Jane Foley, head of currency strategy at Rabobank, pointed out that the BOJ was intent on capping yield rise, suggesting a more technical adjustment rather than a policy change.

Market Sentiment

This year’s Wall Street advance echoes 2019, one of the best years for the S&P 500 over the past decade, according to Morgan Stanley strategist Michael Wilson. The benchmark is set to conclude a fifth month of gains, its longest winning streak since August 2021.

Drawing parallels with the 2019 scenario when the Federal Reserve paused and then cut rates, Wilson stated, “The data we have today suggests to us that we are in a policy-driven, late-cycle rally.” The strategist emphasized that these developments led to a strong rally in equities driven almost exclusively by multiple, not earnings, much like the current scenario.

Overall, the week ahead looks jam-packed with a slew of earnings reports, significant economic data releases, and market-moving events that are likely to shape the investment landscape.