(Bloomberg) — US stock futures edged lower as investors looked forward to earnings from some of the tech giants that have driven the record-breaking rally in equities.
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Futures contracts slipped by about 0.2% after the latest all-time-high close on Wall Street Monday stretched the S&P 500’s gains this month to 3.3%, while the Nasdaq 100 has surged 4.6%. In premarket trading Tuesday, General Motors Co. jumped as much as 9.1% after beating profit expectations, while United Parcel Service Inc. fell as its revenue guidance missed projections. Europe’s Stoxx 600 index crept to a new two-year high as banking and media stocks led gains.
The busiest week so far of this reporting season is moving up a gear. Microsoft Corp. and Alphabet Inc. will offer the first evidence later of whether the bullish sentiment around the so-called Magnificent Seven looks sustainable. By the time Apple Inc., Amazon.com Inc. and Meta Platforms Inc. are done reporting Thursday, five tech megacaps with a combined market value exceeding $10 trillion will have updated the market.
The tech rally has been fueled by expectations that interest-rate cuts from the Federal Reserve will help boost earnings growth. While the Fed is expected to hold rates this week, investors are keenly awaiting comments from Chair Jerome Powell after Wednesday’s decision for clues on the policy outlook. Traders are assigning roughly even odds to the prospect that the central bank will start lowering borrowing costs at its next meeting in March.
“Everything will play out in the next three days between the Fed meeting and the US tech results,” said Alexandre Baradez, chief market analyst at IG Markets in France. “The market is waiting for Powell to open the door for a rate cut in March, but it could very well be signaled for the second quarter.”
The role of a small number of stocks in powering the advance on Wall Street poses a risk to the market and has a lot in common with the dot-com bubble, according to JPMorgan Chase & Co. quantitative strategists led by Khuram Chaudhry.
The share of the top 10 stocks on the MSCI USA Index, including all of the Magnificent Seven — Apple, Microsoft, Nvidia Corp., Alphabet, Amazon, Meta and Tesla — rose to 29.3% by the end of December. That’s just moderately below the historical peak of 33.2% in June 2000, the strategists wrote. And just four sectors are represented in the top 10 stocks, against a historical median of six.
“The key takeaway is that extremely concentrated markets present a clear and present risk to equity markets in 2024,” Chaudhry said. “Just as a very limited number of stocks were responsible for the majority of gains in the MSCI USA, drawdowns in the top 10 could pull equity markets down with them.”
Treasury yields extended their drop Tuesday after a cut in the quarterly borrowing estimate by the US Treasury eased concerns about the flood of debt being issued to cover the federal deficit. The dollar was steady.
In commodities, oil dropped as the market waited for a US response to the deadly attack on American troops in Jordan, which could risk an escalation of tensions in a region key to global crude production.
Elsewhere, Nigeria’s naira plunged to a record against the dollar following a revision of the methodology used to set the exchange rate, in effect the second devaluation of the currency in seven months. The local unit depreciated 31% to 1,413 naira a dollar on Monday in the official foreign exchange window.
Corporate Highlights
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Pfizer Inc. reported fourth-quarter earnings that beat analysts’ estimates after agreeing to allow the US government to return millions of doses of its Covid-19 treatment at the end of 2023.
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JetBlue Airways Corp. predicted a worse-than-expected sales decline this quarter as it contends with uneven demand and elevated costs, a setback for the carrier as the fate of its troubled $3.8 billion acquisition of Spirit Airlines Inc. remains murky.
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British distiller Diageo Plc disappointed investors again with lower-than-expected sales and earnings, as a slowdown in North America compounded a collapse in demand in Latin America and the Caribbean.
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Saudi Aramco abandoned a plan to boost its oil output capacity, a huge reversal that will raise questions about the kingdom’s view on future demand.
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Volkswagen AG is pushing back plans to seek outside investors for its battery unit after slower demand for electric vehicles dims prospects for the business, with the industry facing an increasingly daunting reality in the EV transition.
Key events this week:
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US Conf. Board consumer confidence, JOLTS jobs openings, Tuesday
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Microsoft, Alphabet earnings, Tuesday
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China non-manufacturing PMI, manufacturing PMI, Wednesday
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Japan industrial production, retail sales, housing starts, Wednesday
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Bank of Japan issues summary of opinions from January policy meeting, Wednesday
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Boeing announces earnings amid US government safety probe, Wednesday
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Federal Reserve interest rate decision and Fed Chair Jerome Powell’s news conference, Wednesday
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US Treasury quarterly refunding, Wednesday
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China Caixin manufacturing PMI, Thursday
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Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Thursday
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US productivity, construction spending, ISM Manufacturing, initial jobless claims, Thursday
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Apple, Amazon, Meta, Deutsche Bank, BNP Paribas earnings, Thursday
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Bank of England interest rate decision, Thursday
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US employment report, University of Michigan consumer sentiment, factory orders, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.2% as of 8:27 a.m. New York time
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Nasdaq 100 futures fell 0.2%
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Futures on the Dow Jones Industrial Average fell 0.2%
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The Stoxx Europe 600 rose 0.1%
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The MSCI World index was little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0841
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The British pound fell 0.3% to $1.2666
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The Japanese yen was little changed at 147.48 per dollar
Cryptocurrencies
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Bitcoin was little changed at $43,203.81
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Ether fell 0.2% to $2,302.68
Bonds
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The yield on 10-year Treasuries declined one basis point to 4.06%
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Germany’s 10-year yield advanced two basis points to 2.26%
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Britain’s 10-year yield declined one basis point to 3.86%
Commodities
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West Texas Intermediate crude fell 0.8% to $76.13 a barrel
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Spot gold rose 0.1% to $2,035.77 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Divya Patil and Farah Elbahrawy.
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