The Tuesday Market Minute
- Global stocks mixed as Asia gets caught in Wall Street’s Monday slump, while Europe attempts to rebound from its worst sell-off since October.
- Delta-variant infection rates have investors questioning growth prospects, while bond traders are paring bets against any near-term rate action from the Federal Reserve.
- U.S. stocks have their worst day since mid-May on Monday, with the Dow suffering its biggest single-day decline since October.
- Benchmark 10-year note yields hold at a February low of 1.185% while bitcoin slumps below the closely-watched $30,000 mark.
- IBM jumps 4.5% in pre-market trading after posting its strongest revenue growth in three years after the close of trading last night.
- U.S. equity futures suggest a firmer open on Wall Street ahead of June housing starts data at 8:30 am Eastern time and after-the-bell earnings from United Airlines and Netflix.
U.S. equity futures look set to rebound from the biggest single-day decline on Wall Street in months Tuesday, but doubts over the strength of the global economic recovery continue to linger as bond yields drift back to early February lows amid stubbornly high Delta-variant infection rates in major economies around the world.
Stocks were pummeled Monday as investors worried that rising infections would induce travel restrictions — and potentially even new lockdown orders — that could scupper the global recovery heading into the second half of the year.
That was compounded by bond market reaction to the fact that the Federal Reserve may be unlikely to make any near-term changes to its myriad support programs, including bond purchases, pushing Treasury yields below 1.2%, a level that accelerated declines for cyclical and re-opening stocks.
With more than 161 million Americans now fully-vaccinated, any Delta-variant spread will have far less prevalence than during the peak of last year’s pandemic, but lower inoculation rates around the world mean new cases could grow at faster-than-expected rates, putting hard-earned recovery gains as risk.
Stocks look set to reflect some of those realities Tuesday, with futures contracts tied to the Dow Jones Industrial Average indicating a 135 point opening bell gain, a move that would only claw back around a fifth of yesterday’s 725 point tumble, the biggest since October.
Futures linked to the S&P 500, meanwhile, are priced for a 17 point bounce while those linked to the tech-focused Nasdaq are looking at a 60 point jump as benchmark 10-year note yields retreat back to 1.185%, the lowest since February.
Market volatility, however, is also spiking, with the CBOE’s key VIX index trading at the highest levels in more than two months at 21.15 points, suggesting intra-day market moves could be more severe than usual, particularly given that trading volumes on Monday topped 12 billion, some 18.7% ahead of the 20-day average.
Early market gainers Tuesday include IBM (IBM) – Get Report, which was marked 4.05% higher at $143.50 after posting its strongest revenue gains in three years amid a better-than-expected second quarter earnings report published after the close of trading last night.
Earnings, in fact, may provide the path to recovery this week as around 80 companies are expected to report June quarter profits over the next four days, including Netflix (NFLX) – Get Report and United Airlines (UAL) – Get Report after the close of trading today and Johnson & Johnson (JNJ) – Get Report, AT&T (T) – Get Report, Microsoft (MSFT) – Get Report and Intel (INTC) – Get Report later in the week.
So far, 90.2% of the 41 S&P 500 companies reporting have beaten Street forecasts, with analysts expecting collective earnings to rise 72% from last year to a share-weighted $393 billion.
In other markets, the U.S. dollar index, which tracks the greenback against a basket of its global currency peers, held gains that pegged it at a three-month high of 92.88 in overnight trading as reflation trades in the euro faded amid slowing growth prospects and faster Delta-variant infection rates.
Oil prices, too, staged a modest rebound after yesterday’s OPEC-lead slump, with WTI crude for August rising 26 cents per barrel to $66.61 and Brent contracts for September pegged 30 cents higher at $68.90 per barrel.
In overseas markets, Europe’s Stoxx 600 rebound from its worst day since October with a modest 0.48% gain, paced largely by beaten-down travel stocks, while Japan’s Nikkei 225 ended its session at a 6-month low of 27,388.16 points heading into the start of what could be a COVID-clouded attempt to host the Olympic Games later this week.