Futures contracts for the big U.S. stock indices were unchanged at the start of the overnight session Sunday evening, as investors prepared for one of the busiest weeks of the first-quarter earnings season. Contracts based on the Standard & Poor’s 500 dropped less than 0.1 percent, while those based on the Dow fell 5 cents. The Nasdaq 100 futures fell by less than 0.1 percent. Investors are in for a busy week ahead, with a Federal Reserve gathering, the unveiling of President Joe Biden’s “American Families Plan,” more inflation results, and continuing corporate earnings releases. The next week is a big one for corporate earnings, with roughly a third of the Standard&Poor 500 expected to brief investors on how their companies performed in the three months ending March 31. This week, some of the world’s biggest corporations, including Apple, Microsoft, Amazon, and Alphabet, will report earnings.
With the global economy increasingly reopening, companies such as Boeing, Ford, and Caterpillar are likely to report cost pressures from increasing commodity and transportation costs. So far this earnings season, corporations have largely outperformed Wall Street expectations. With 25% of the Standard&Poor 500 firms posting first-quarter performance, 84 percent have posted a favourable per-share earnings and 77 percent have surpassed sales expectations. If the final number is 84 points, it will tie the record for the highest percentage of Standard&Poor’s 500 firms showing a favourable EPS surprise since FactSet started monitoring this statistic in 2008. Nonetheless, investors have reacted lukewarmly to the company’s solid first-quarter earnings. Strategists believe that the Standard&Poor’s 500 and Dow’s already-strong valuations and near-record high levels have dampened traders’ excitement. However, benchmarks are within 1% of their all-time highs.
Stock prices fell last week, when several news outlets announced that Biden would aim to raise the capital gains tax on wealthier Americans to help fund the second phase of his Build Back Better plan. The president is set to lay out the $1.8 trillion agenda to a joint session of Congress on Wednesday evening, including budget plans for job education and family support. According to Bloomberg News, the measure would raise the capital gains tax to 39.6 percent on people making $1 million or more, up from 20 percent now. The news that the White House may consider raising the capital gains tax on the nation’s wealthy sent the Standard&Poor’s 500 down nearly 1% on Thursday, as several sources started covering the potential rise.
After more than recouping those gains with a 1.1 percent turnaround on Friday, the broad stock index finished the week down 0.13 percent, snapping a four-week winning streak. Last week, the Dow and the Nasdaq dropped 0.5 percent and 0.3 percent, respectively. Evercore ISI strategist Dennis DeBusschere told CNBC on Sunday, that fears of an economic peak and pessimistic global Covid-19 reports may have ended the Standard&Poor’s 500′s weekly win streak, but that the lingering pessimism shouldn’t last much longer.
“A steadily strengthening labour market, which will continue as the United States normalises,” he wrote, “is compatible with peak GDP concerns and suggests the demand gap will narrow quickly, placing upward pressure on inflation, bond yields, and cyclical asset prices.” He advised buyers to buy stocks vulnerable to the health of the US economy, known as cyclicals, ahead of a shift in market tone. “It is worthwhile to get ahead of the mood change (less negative news) now and reengage in Cyclicals while diminishing Defensives,” DeBusschere said. “If we learned something from last week’s numbers, it is that 1) Europe is not proving to be a drain on global economy and 2) pent-up market demand is proving immune to negative COVID headlines.” The Federal Reserve, which meets on Tuesday and Wednesday, is set to defend its strategy of allowing inflation to run high while assuring investors that the price increase is only temporary. Chairman Jerome Powell will hold a news conference on Wednesday afternoon to address the decision of the Federal Open Market Committee.
