The futures market remains above breakeven levels, as a few earnings reports released this morning have offset positive results announced after the bell yesterday. Dow-30 component Microsoft (MSFT) recorded better-than-expected quarterly sales and profits, as cloud-based revenues climbed 27% year over year, boosting the stock in after-hours trading. Additionally, the stock price of Chipotle Mexican Grill (CMG) increased following its first-quarter report, with earnings benefitting from price hikes. Still, worries continued to grow about the state of the regional banking group, with First Republic Bank (FRC) shares continuing to slide this morning following a rapid decline yesterday. Fears of continuing deposit outflows have ensued.
In economic news, the U.S. Census Bureau reported that durable goods orders increased by 3.2% in March, which was much better than expected. The stock market moved up a bit after this release, and the market appears to be on track for a positive start to the trading day.
The stock market traded negatively yesterday as fears about the banking sector increased following weaker earnings news. Moreover, growing recession fears have caused traders to sell cyclical positions. Overall, the stock market indices traded lower throughout the day, ending not far from their lows. The S&P 500 fell 65 points (down 1.58%), the NASDAQ declined 238 points (down 1.98%), and the Dow Jones Industrial Average was off 345 points (down 1.02%). Market breadth was severely negative, as decliners outpaced advancers by a 5.1-to-1.0 ratio. All 11 stock sectors were down on the day, and economically-sensitive materials equities were among the worst performers. Stocks in the utilities and consumer staples industries held up better as traders cycled into less-volatile assets.
In commodity news, oil prices fell rapidly yesterday as traders moved away from energy, fearing a potential recession would hurt demand. Elsewhere, U.S. Treasury bond yields were mostly higher across the board as expectations for how long interest rates would remain elevated increased. The bond with the highest yield is the 3-month Treasury, and traders are betting that the Federal Reserve will cut rates later in the year as economic weakness forces their hand. The Chicago Board Options Exchange Volatility Index (VIX), known to some as the “fear index,” rose rapidly as traders rushed into this market to purchase options protection.
Several economic reports will be released in the days ahead. These include U.S. first-quarter GDP (Gross Domestic Product), initial jobless claims, and pending home sales on Thursday. Additionally, the Bureau of Economic Analysis will release its core- and noncore personal consumption expenditures price index for March on Friday, which should give some insight into inflation, while the personal spending and income should show the state of the consumer. These will likely be some of the final inputs before the Federal Reserve Open Market Committee Meeting determines interest rate policy next week.
Elsewhere, several hundred companies will report earnings results in the days ahead as we reach the apex of earnings season. This includes Dow-30 components Amgen (AMGN), Caterpillar (CAT), Honeywell (HON), Intel (INTC), and Merck (MRK) on Thursday, and Chevron (CVX) on Friday. Overall, we think most eyes will be on the coming earnings reports and guidance for future quarters.
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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