With important economic data releases, Federal Reserve Chairman Jerome Powell’s testimony, and the start of the second-quarter earnings season, investors are anticipating a critical week, as shown by the cautious mood reflected in U.S. stock index futures on Monday.
Once Friday’s nonfarm payrolls report showed a slowing in U.S. employment growth for June, investors became more optimistic about interest rate reduction, which further heightened concerns about labor market vulnerabilities. The Federal Reserve’s projected monetary policy path for the remainder of the year has been influenced by these statistics.
According to CME FedWatch data, traders now perceive a 70% probability of a 25 basis point interest rate cut at the Fed’s September meeting, up from 60% a week ago. Overall, market expectations lean towards a total cut of approximately 50 basis points by the end of the year.
Thursday’s release of June’s consumer price index (CPI) data will be closely scrutinized for further insights into inflation trends. Economists anticipate a modest uptick in U.S. headline inflation by 0.1% on a monthly basis, compared to a flat reading in the previous month. Core inflation, which excludes volatile food and energy prices, is expected to rise by 0.2%.
Despite the cautious outlook, the S&P 500 and Nasdaq extended their rally on Friday, reaching record highs buoyed by strong performances from major technology stocks like Meta Platforms, Microsoft, Apple, and Alphabet. These megacap tech firms saw their stocks reach new peaks in premarket trading, with Microsoft, Apple, and Alphabet showing slight gains while Nvidia experienced a minor decline.
The upcoming second-quarter earnings season, set to kick off on July 12 with reports from major banks including Citigroup, JPMorgan Chase, and Wells Fargo, is anticipated to provide critical insights into corporate profitability amid the ongoing economic challenges and market dynamics.
However, early indications suggest a cautious start for financial stocks, with JPMorgan slipping 0.4% in premarket trading following broader losses that saw the S&P 500 banks index retreat by 1.6% in Friday’s session. Investors are keenly observing whether the lofty valuations of a select few megacap stocks, such as Nvidia, can be justified by their earnings performance.
Federal Reserve Chairman Jerome Powell’s semi-annual testimony before the Senate Banking Committee on July 9 and the House Financial Services Committee on July 10 will be pivotal events shaping market expectations. Powell’s remarks, along with speeches from other Fed officials throughout the week, are expected to provide further clarity on the central bank’s stance regarding future interest rate adjustments.
Additionally, economic data releases scheduled for Friday, including the producer price index (PPI) for June and the University of Michigan’s consumer sentiment survey, will offer crucial insights into inflationary pressures and consumer confidence, influencing market sentiment and potential Fed actions.
S&P 500 e-minis fell 2.25 points, or 0.04%, in premarket trade at 5:57 a.m. ET, while Dow e-minis increased 9 points, or 0.02%. The 6.75 point, or 0.03%, decrease in the Nasdaq 100 e-minis was marginal.
When Skydance Media announced on Sunday that it was merging with Paramount Global, the company’s stock shot up 3.9%. Skydance Media had offered $4.5 billion in cash or stock in addition to an additional $1.5 billion to strengthen Paramount’s balance sheet.
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