US Stocks Look Set For Lower Start On Tuesday Ahead Of Microsoft's Earnings: Analysts Caution Of More Near-Term Volatility

Zinger Key Points
  • Analysts unequivocally call for market volatility in the near term.
  • Opinions on the market outlook for the second half of the year diverge as economic uncertainties limit visibility.

The index futures signal a nervous start on Wall Street as the breathtaking rally of the past two sessions and the imminent tech earnings force traders to go on the defensive.

Cues From Monday’s Trading:

U.S. stocks rallied out of the gate on Monday reflecting optimism among traders over soft landing and better-than-feared earnings from companies. The major averages started the session high and advanced till early afternoon trading. A period of consolidation followed before the major indices gave back some of their gains in late trading and yet closed notably higher for the session.

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With Monday’s rally, the S&P 500 Index closed above the 4,000 psychological mark for the first time since early December. The Nasdaq Composite, which outperformed the other major gauges, also settled at nearly a two-month high.

A majority of sectors advanced during the session, led by IT, communication services, financial, consumer discretionary and industrial stocks. On the other hand, energy stocks pulled back.

U.S. Indices' Performance On Monday
Index Performance (+/-)   Value
Nasdaq Composite +2.01%   11,364.41
S&P 500 Index +1.19%   4,019.81
Dow Industrials +0.76%   33,629.56

Analyst Color:

With a mild recession and modest earnings declines likely already baked in, a potential Fed pause after a March interest rate hike could set the stage for a nice stock market rebound, LPL Financial market strategists said in a recent note.

“Earnings may not be much of a catalyst this earnings season, but we see some of the pessimism turning into optimism as 2023 progresses,” they said.

While conceding that volatility will remain elevated in the near term, the analysts said the key risks to stocks will likely be largely resolved mid-year. This would set the stage for stocks to make a run at the firm’s year-end fair value S&P 500 target of 4,400–4,500 by year-end, they added.

Not all are very optimistic as the bull-bear tug continues. “The Big Short” fame Michael Burry shared a premonitory chart of the S&P 500 Index dating back to 2002, when technical signals pointed to a breakout and a potential rebound as the shorter-term 50-day simple moving average, or SMA, breaking above the 200-day SMA. But the index went on to record a 40% decline.

A similar technical signal – called the “golden cross” has emerged now, with many chiming in that it could be a false signal.

Futures Today:

U.S. Futures' Performance On Tuesday
Index Performance (+/-)  
Nasdaq 100 Futures -0.43%  
S&P 500 Futures -0.28%  
Dow Futures -0.20%  
R2K Futures -0.22%  

In premarket trading on Monday, the SPDR S&P 500 ETF Trust SPY slipped 0.27% to $399.56 and the Invesco QQQ Trust QQQ fell 0.38% to $287.85 according to Benzinga Pro data.

Upcoming Economic Data:

The Redbook index, a sales-weighted index of year-over-year same-sales growth in a sample of large U.S. general merchandise retailers, is scheduled to be released at 8:55 a.m. EST.

The S&P composite, manufacturing and services purchasing managers’ indices for January are due at 9:45 a.m. EST. Economists, on average, expect the manufacturing PMI to edge down from 46.2 in December to 46. The service sector PMI is also expected to slip from 44.7 to 45.

A 10 a.m. EST, Richmond Federal Reserve is scheduled to release its manufacturing and services indices.

The Treasury will auction 52-week bill notes at 11:30 a.m. EST and 2-year notes at 1 p.m. EST.

Stocks In Focus:

  • The earnings flow accelerates with Dow components Johnson & Johnson JNJ, 3M Co. MMM, Travelers Companies Inc. TRV and Verizon Communications Inc. VZ reporting ahead of the market open. Conglomerate General Electric Co. GE will also release its quarterly results before the market open.
  • Notable among the companies reporting after the close include Texas Instruments, Inc. TXN and Microsoft Corp. MSFT.

Top Analysts’ Calls:

  • JPMorgan initiates CrowdStrike Holdings Inc. CRWD with an Overweight rating
  • JPMorgan upgrades Blackstone Inc. BX from Neutral to Overweight
  • Bernstein downgrades Advanced Micro Devices Inc. AMD from Outperform to Market Perform and reduces the price target from $95 to $80

Commodities, Bonds, Other Global Equity Markets:

Crude oil futures were trading flat at $81.56 a barrel after advancing 0.46% on Monday.

The bond market continues to be weighed down by recession fears, with the 10-year Treasury note holding below the 3.5% level and traded down 0.028% points at 3.495%.

The Asia-Pacific markets that remained open for trading closed Tuesday’s session on a mixed note. Japan’s Nikkei 225 Index extended its gain for the fourth straight session and settled up 1.46%, while the Indonesian and New Zealand markets closed modestly lower. The Chinese, Hong Kong, Singaporean, Malaysian and Taiwanese remained closed for Lunar New Year holidays.

Stocks in Europe showed lackluster sentiment on Tuesday and traded narrowly mixed in late-morning deals.

Read Next: Tesla, Microsoft, IBM, Intel, TI Among Companies Reporting This Week: Can Netflix's Optimism Spill Over To Rest Of Tech Space?

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Posted In: EarningsNewsFuturesPreviewsTop StoriesEconomicsFederal ReservePre-Market OutlookMarketsTrading IdeasDow IndustrialsInflationNASDAQ CompositeRecessionS&P 500 Index
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