Equity Index Futures Slightly Higher As U.S. Dollar Retreats

(Monday Market Open) Equity index futures pointed to a higher open as the U.S. dollar retreated from Friday’s rally.

Potential Market Movers

Despite the movement in the futures and currency markets. it’s a relatively light news day on the economic calendar. However, there’s a lot of inflation news this week to potentially move markets as investors continue to try and divine where the Federal Reserve will go next with interest rates. The Consumer Price Index (CPI) is scheduled for Wednesday and the Producer Price Index (PPI) on Thursday.

The Cboe Market Volatility Index (VIX) was higher ahead of the market open rising 1.8% and back above the 21 level, suggesting some rising nervousness among investors. Markets could bounce around ahead of the inflation reports due to a lack of immediate catalysts and with the S&P 500® index (SPX) still testing its May highs.

There are a number of earnings reports this morning, but not many household names. Here’s a look at a few and what they were doing in today’s premarket session.

• Dominion Energy D topped earnings and revenue estimates and reaffirmed its full-year earnings guidance and its long-term dividend growth plans. The stock rose 0.52%.

• BioNTech BNTX missed on top- and bottom-line numbers causing the stock to tumble 4.71%. BNTX partnered with Pfizer PFE to develop their COVID-19 vaccine while reiterating its prior 2022 financial outlook saying their adjustments for the Omicron variant are on target.

• Palantir PLTR was down 14.4% after missing earnings estimates and offering a weak revenue outlook.  

• Monday.com MNDY rocketed 17.67% higher after reporting a smaller-than-projected loss and higher revenues than expected. The company increased its guidance but warned against currency headwinds.

• Tyson Foods TSN reported mixed quarterly results, missing on earnings despite higher-than- expected revenues. Tyson reported that higher prices helped offset lower sales volume. TSN fell 2.58% in premarket action.

A few other companies are moving due to news outside of earnings. CVS Health CVS plans to acquire Signify Health SGFY, according to The Wall Street Journal. CVS was up 0.64% in premarket action while SGFY jumped 15.75%.

Tesla TSLA rose 2.7% in extended hours trading on weekend news that the climate bill passed the Senate.

Bed, Bath & Beyond BBBY was up 33% ahead of the opening bell adding to last week’s gains of more than 20%. According to S&P Global Market Intelligence, the moves may be related to a “short squeeze” causing short sellers to cover because prospects for the company haven’t changed.

Reviewing the Market Minutes

Stocks were mostly negative on Friday as a better-than-expected July Employment Situation report spurred investors’ fears that the Federal Reserve might need to be more aggressive with future rate hikes. Analysts had forecast nonfarm payrolls to increase by 250,000 jobs—instead they came in at 528,000. The unemployment rate fell to 3.5%, lower than the expected 3.6%. Notably, the participation rate fell, which helped boost the unemployment rate.

The bond market reacted to the news with the 2-year Treasury yield rising 19 basis points to 3.23% and the 10-year Treasury yield (TNX) rising 16 basis points to 2.84%. In a shift on Friday, the CME FedWatch Tool is now calculating a 66.5% probability of a 75-basis-point hike in September. On Thursday, FedWatch it offered a 66% probability of a 50-point hike. Wednesday’s Consumer Price Index (CPI) report is like to change these probabilities once again.

The U.S. Dollar Index ($DXY) rallied 0.84% as yields climbed.

After all was said and done, the S&P 500® index (SPX) was able to regain much of its intraday losses to close 0.16% lower on the day. The Nasdaq ($COMP) was down 0.50% though the Dow Jones Industrial Average ($DJI) closed the week up 0.23%.

Mega-cap stocks were among the biggest losers with Tesla (TSLA) falling 6.6%, Meta Platforms (META) tumbling 2%, and Amazon (AMZN) sliding 1.24%. The CRSP U.S. Mega-cap Index dropped 0.29%.

The energy sector made a bit of rebound due in part to earnings from EOG Resources (EOG) that sent that stock 7.2% higher. Additionally, WTI crude oil futures gained 0.3% to finish Friday at $88.73 per barrel. 

CHART OF THE DAY: DAX THE WAY? The German DAX DBI appears to have found support around the 12,500 level. It’s also exhibiting relative strength against the S&P 500 (SPX—green), creating a bullish divergence. These could be a good sign for the German stock market. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Three Things to Watch

EFFICIENT FRONTIER: Much of the economic news coming out of Germany over the last few months has been negative, but the nation could be applying its well-known efficiency to a quick economic recovery. Last week it topped forecasts for June manufacturing and services PMIs. Additionally, the country reported much better-than-expected gains in June exports, which should boost the country’s GDP.

According to the World Bank, German exports account for nearly 47% of its GDP and, according to the U.S. State Department, nearly a quarter of Germany’s jobs are related to exports, so export gains are no small matter.

The U.S. is Germany’s largest trading partner, exporting $5 billion more in goods than it does to France or China. This means that Germany is likely to benefit from a stronger dollar because it makes German goods less expensive for U.S. customers.

LOSS OF PRODUCTIVITY: Friday’s jobsincrease against two consecutive quarters of falling U.S. GDP may be concerning to economists. Productivity is one of the top measurements of a country’s ability to grow wealth. It’s not uncommon to see productivity decline during economic slowdowns because the cost of labor often offsets any gains in output.

The U.S. Nonfarm Productivity report fell 7.3% in Q1. The first print for Q2 comes out Tuesday and is forecast at -4.6%.

WIDER MARGINS: Last week was packed full of second-quarter earnings announcements with 87% of the companies in the S&P 500 having reported thus far. According to FactSet, 75% of companies had positive earnings surprises above the previous week’s number of 73%, but still below the five-year average of 77%. The margin for surprises also widened from 3.1% last week to 3.4% this week, yet that five-year average is 8.8%.

The energy sector continues to show the strongest growth in earnings and revenue, but health care continues to be a positive surprise among earnings surprises.  

Average earnings growth for all S&P 500 companies during Q2 is still on track for 6.7%, according to FactSet. For the third quarter, analysts are projecting earning growth of 5.8% and 6.1% for Q4.

Notable Calendar Items

Aug 9: Earnings from Emerson EMR, Sysco SYY, Roblox RBLX, Coinbase COIN, and Hyatt H

Aug 10: Consumer Price Index (CPI) and earnings from Walt Disney DIS, and Honda Motors HMC

Aug 11: Producer Price Index (PPI) and earnings from Brookfield BAM, Illumina ILMN, Rivian RIVN, and Cardinal Health CAH

Aug 12: Michigan Consumer Sentiment

Aug 15: Earnings from James Hardie Industries JHX and ZipRecruiter ZIP

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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