US Stocks On Recovery Course As Earnings Lend Support: Fed's Hawkish Stance May Unwind Rally In High-Value Names, Says Analyst

Zinger Key Points
  • The recovery seen so far this year faces risk as Fed officials have been drilling hard the prospect of higher rates for longer.
  • As the market processes this, high-value names that have rallied hard will come back down, analyst says.

The see-sawing mood in the market continues as Fed’s data dependency creates volatility. The index futures point to a solidly higher opening on Thursday, signaling a reversal in the sentiment seen in the previous session.

Cues From Wednesday’s Trading:

On Wednesday, stocks reversed course as hawkish Fed speeches and tech pullback, spearheaded by Alphabet Inc. GOOGL GOOG, took the wind out of the sails of the market.

See Also: Best Futures Trading Software

The major averages opened lower and declined steadily through the morning and then went about a consolidation move around the lower levels for the rest of the session.

The communications services sector, which has roughly 10% weighting in the S&P 500 Index, plunged 4.13%, dragged by Alphabet. Technology, utility and material stocks also came under intense selling.

U.S. Indices' Performance On Wednesday
Index Performance (+/-)   Value
Nasdaq Composite -1.68%   11,910.52
S&P 500 Index -1.11%   4,117.86
Dow Industrials -0.61%   33,949.01

Analyst Color:

Wednesday’s down move of the market reflected investors reconsidering prospects of higher interest rates for longer after a strong year-to-date run-up, said fund manager Louis Navellier.

“As the market continues to digest accepting the Fed being higher for longer, expect high-value names which have rallied hard to come back down to Earth, while companies with reasonable valuations and solid earnings and outlooks should continue to find buyers,” he added.

LPL Financial Chief Global Strategist Quincy Krosby, suggested that the top mega-cap leadership names represent about 21% of the S&P 500 Index and will likely have an overreaching impact on the broader market.

The analyst said notwithstanding the cost-cutting measures that have helped, investors are looking for the kind of innovation that propelled them into everyday lives, both professionally and personally.

“Now, as interest rates are still not yet cooperating with the sector’s need for lower rates, innovation will be increasingly important,” Krosby said.

“As Artificial Intelligence (AI) becomes increasingly sophisticated, this could be the catalyst that helps drive the sector in its next phase,” he added.

Futures Today

U.S. Futures' Performance On Thursday
Index Performance (+/-)  
Nasdaq 100 Futures +1.19%  
S&P 500 Futures +0.80%  
Dow Futures +0.65%  
R2K Futures +0.61%  

In premarket trading on Thursday, the SPDR S&P 500 ETF Trust SPY rose 0.84%, to $414.10, and the Invesco QQQ Trust QQQ gained 1.21%, to $308.04, according to Benzinga Pro data.

Upcoming Economic Data:

The Labor Department is scheduled to release the weekly jobless claims report for the week ended Feb. 4 at 8:30 a.m. EST. Economists, on average, expect the number of individuals claiming unemployment benefits at 190,000, up from 183,000 in the previous week.

The Treasury is expected to auction 4-week and 8-week notes at 11:30 a.m. EST and 30-year bonds at 1 p.m. EST.

Stocks In Focus:

  • Walt Disney Company DIS rose over 6.50% in premarket trading following the release of better-than-expected first-quarter results.
  • MGM Resorts International MGM climbed over 6% and Wynn Resorts Limited WYNN rose about 6%, also in reaction to their earnings reports.
  • Toymaker Mattel Inc. MAT plunged about 10% after reporting disappointing fourth-quarter results.
  • Robinhood Markets Inc. HOOD moved up over 6% despite falling short on both revenue and earnings per share.
  • AbbVie Inc. ABBV, AstraZeneca Plc. AZN, PepsiCo. PEP, Warner Music Group Corp. WMG, Kellogg Company K and Philip Morris International, Inc. PM are among the major companies reporting before the market open.
  • Notable companies reporting after the close include Lyft, Inc. LYFT, Motorola Solutions, Inc. MSI, PayPal Holdings, Inc. PYPL and News Corp. NWSA NWS.

Top Analysts’ Call

  • Uber Technologies UBER: Raymond James maintains Outperform rating and raises price target from $38 to $41
  • Yum Brands, Inc. YUM: Cowen reiterates Outperform rating
  • Affirm Holdings, Inc. AFRM: RBC Capital downgrades from Outperform to Sector Perform

Commodities, Bonds, Other Global Equity Markets:

Crude oil futures extended their gains for a fourth straight session and traded up about 0.41% at $78.78 a barrel on Thursday. Meanwhile, the yield on the benchmark 10-year Treasury note has slipped below the 3.6% level.

Most Asia-Pacific markets ended Thursday’s session lower, tracking the negative lead from Wall Street overnight. The Chinese and Hong Kong markets bucked the downtrend with notable gains, encouraged by the reopening of the Chinese economy. 

European stocks rallied on Thursday and were trading with notable gains in late morning trading.

Read Next: Jamie Dimon Warns Against Declaring Early Victory Against Inflation — Says US Debt Default Would Be Potentially 'Catastrophic'

Market News and Data brought to you by Benzinga APIs
Actual EPS
EPS Surprise
Actual Rev
Rev Surprise
Posted In: EarningsNewsFuturesPreviewsTop StoriesEconomicsFederal ReservePre-Market OutlookMarketsTrading Ideasartificial intelligenceDow IndustrialsFed Funds RateInflationJerome PowellJobless ClaimsNASDAQ CompositeS&P 500 Index
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!