Nasdaq, S&P Futures Narrowly Mixed As New-Found Optimism Tempers Ahead Of Big Bank Earnings, Consumer Sentiment Data

US stocks look set to start Friday’s session on a nervous note as the recent gains introduce caution amid traders. The trading direction could also hinge on the earnings reports from big banks and the results of the University of Michigan's consumer sentiment survey.

What Happened: On Thursday, the major averages experienced some volatility in early trading as the market digested the December inflation data that came right in line with expectations. After a slip back in early trading, stocks recovered soon after and advanced until the mid-session. A consolidation move followed, leading the averages to close higher for the session.

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The Nasdaq Composite and the S&P 500 indices settled at fresh one-month highs, while the Dow Industrials scaled the highest level since early December.

Most sectors, barring defensive utility, healthcare and consumer staple stocks, advanced. Technology, real estate and energy stocks were leaders of Thursday’s rally.

Following the inflation data, most economists are convinced that the pace of the Fed rate hike would slow down. "The weakening trend of inflation should convince the Fed to further downshift the pace of rate hikes in the upcoming meeting. The Fed will likely hike rates by 0.25% on February 1,” said Jeffrey Roach, chief economist at LPL Financial.

That said, the Fed is likely to begin cutting rates in the second half of the year only if the labor market significantly cools, he added.

The market is equally worried about corporate earnings. Prudent Management Associates’ senior investment officer Daniel Berkowitz said, “We would also note that upcoming earnings reports will play a critical role in setting the trajectory of the markets over the next few months."

He noted that the consensus forecast is for a 4% decline in S&P 500 earnings. “A string of worse-than-expected reports may heighten market volatility and take some of the air out of the strong start to 2023,” he warned.

Here’s a peek into index futures trading:

In premarket trading on Friday, the SPDR S&P 500 ETF Trust SPY edged down 0.03% to $396.86 and the Invesco QQQ Trust QQQ fell 0.20% to $278.50, according to Benzinga Pro data.

On the economic front, the Labor Department is scheduled to release the export and import prices report for December at 8:30 a.m. EST. Export and import prices are forecast to have fallen 0.5% and 0.9%, respectively, compared to the previous month. This would mark a steeper decline than November’s 0.3% and 0.5% falls.

At 10 a.m. EST, the University of Michigan is scheduled to release its consumer sentiment index for January. Economists, on average, expect the index to rise from 59.7 in December to 60.5. Traders may also focus on the one-year and five-year inflation expectations reading that are part of the report. In December, the two readings were at 4.4% and 2.9%, respectively.

Stocks In Focus:

• Tesla Inc. TSLA fell close to 4% in premarket trading following U.S. price cuts announced by the company. Automakers such as Stellantis NV STLA, Ford Motor Company F and General Motors Corp. GM were moving lower on fears that Tesla’s price cuts will impact their sales.
• Richard Branson-owned Virgin Galactic Holdings Inc. SPCE rallied over 16% after the company confirmed it was on track to start commercial space travel in the second quarter.
• Defense contractors Raytheon Technologies Corp.RTX, Lockheed Martin Corp. LMT and Northrop Grumman Corp. NOC were all moving lower in premarket trading, following rating downgrades by Goldman Sachs.
• Bank of New York Mellon Corp. BK, Citigroup Inc. C, Bank of America Corp. BAC, JPMorgan Chase & Co. JPM, Wells Fargo & Co. WFC and BlackRock Inc. BLK are among the companies due to release their quarterly results before the market opens.

Commodities, Other Global Markets:

Crude oil futures were rising for a third straight session and the yield on the 10-year U.S. Treasury note was recovering modestly after plunging below 3.5% on Thursday in reaction to the CPI data.

The major Asia-Pacific markets ended Friday’s session higher on hopes of the Fed slowing rate hikes, although Japan’s Nikkei 225 average bucked the downtrend amid fears that the Bank of Japan will begin monetary policy normalizing.

European stocks are advancing strongly, with sentiment supported by data showing the U.K. economy growing in November, helped by the service sector expansion.

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