U.S. stock futures show caution as latest bounce stalls

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MARKET SNAPSHOT

U.S. stock futures ticked higher Monday as investors attempted to build on a tech-led bounce that saw the Nasdaq lead the way higher at the end of last week.

How stocks are trading

  • S&P 500 futures rose 6.25 points, or 0.2%, to 3,994.75.
  • Dow Jones Industrial Average futures rose 72 points, or 0.2%, to 33,546.
  • Nasdaq-100 futures were up 21 points, or 0.2%, at 11,698.

Stocks rose sharply on Friday, but the Dow and S&P 500 suffered weekly losses. The Dow slumped 2.7%, while the S&P 500 shed 0.7%. The Nasdaq Composite advanced 0.6% for the week after surging 2.7% on Friday.

What’s driving markets

Wall Street was in line to start Monday little changed as another rally ran out of steam.

“Markets finished the week strongly, with the beaten down Nasdaq continuing to show signs of new year promise. After a [bad] 2022 in which the rising interest rate environment sucked much of the life from growth stocks, there has been some bargain hunting from investors who wonder whether there has been an overshoot of depressed valuations,” said Richard Hunter, head of markets at Interactive Investor.

The stock market’s recent vacillations reflect how traders daily shift the emphasis they afford the market’s current main drivers; fears of an economic slowdown; how much the Federal Reserve will continue to raise interest rates given inflation levels and evidence of any slowdown; and the impact these factors will have on corporate earnings.

As these issues do battle for traders’ attention the result is an S&P 500 that has of late been trading in an increasingly narrow range, noted Jonathan Krinsky, chief technical strategist at BTIG.

“The market continues to frustrate both bulls and bears, unable to breakout decisively either way. At this point, we wonder if this range is too obvious, and perhaps we need to see a ‘false breakout’ above 4k before moving lower, similar to what we saw in mid December at 4,100,” Krinsky wrote in a note to clients.

The Fed is now in its blackout period ahead of its next decision on interest rates, due Feb. 1, so traders will have no monetary policy chatter on which to make bets. Consequently, the continuing earnings season will likely carry greater heft for now.

Monday’s earnings roster was light. But it really picks up over the next few days as the likes of General Electric Co. Johnson & Johnson Microsoft Corp. Tesla Inc. Verizon Communications Inc. International Business Machines Corp. and Intel Corp. deliver updates.

The earnings season so far has been a mixed bag. Tajinder Dhillon, analyst at Refinitiv, said 63.6% of companies so far have beaten earnings estimates, compared with the long-term average of 66.3%, and the prior four quarter average of 75.5%.

Many bourses in Asia, notably Hong Kong and Shanghai, were closed for the Lunar New Year, but elsewhere the tone was upbeat, with Japan’s Nikkei 225 gaining 1.3%.

“Investor confidence has surged into the Lunar New Year after China lifted its drastic COVID restrictions and hopes have risen that the end to interest rate hikes may finally be in sight while there have been signs economies may prove more resilient in the downturn,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

It’s a quiet start to the week for U.S. economic data, with just the leading economic indicators for December due for release at 10 a.m. Eastern.

Companies in focus

  • Activist investor Elliott Management Corp. has made a multibillion-dollar investment in Salesforce Inc. CRM, The Wall Street Journal reported Monday, citing people familiar with the matter. Shares of the Dow component rose 4.7% in premarket trade.
  • Shares of Evoqua Water Technologies Corp. surged 15% in premarket trading Monday, after the water and wastewater treatment company agreed to be acquired by Xylem Inc. in an all-stock deal valued at $7.5 billion. Xylem’s stock tumbled 7.8%.
  • Baker Hughes Co. shares were up more than 2% after the oil-field-services company fell short of expectations with its latest revenue and earnings numbers but said it had record orders of $8 billion for the fourth quarter.
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