U.S. stock futures are showing early signs of a rebound on Monday, as Wall Street seeks to snap its three-week losing streak.
Last Week’s Performance
Last Friday, the Dow Jones Industrial Average (DJIA) saw a modest gain of 26 points (or 0.07%) to reach 34,501. The S&P 500 (SPX) experienced a slight decline of 1 point (or 0.01%) to 4,370, while the Nasdaq Composite (COMP) dropped by 26 points (or 0.2%) to 13,291.
Factors Influencing Market Sentiment
Recent concerns over China’s economy and rising sovereign bond yields have led to stumbling global markets. The S&P 500 saw a worrying 2.1% decrease last week, with every sector ending in the red, according to Stephen Innes, managing partner at SPI asset management.
Current Landscape and Outlook
The market is currently facing limited reassurance from either of these factors as Monday begins. The market fell short of expectations following China’s central bank trimming interest rates over the weekend. Moreover, the 10-year Treasury yield has increased by approximately 4 basis points to 4.29%, remaining close to 15-year highs.
These rising borrowing costs have presented significant challenges for major technology stocks that typically lead the market, Innes explained.
Technology Stocks Take a Hit
Last week, several prominent stocks within the S&P 500, including GOOGL (-1.89%), TSLA (-1.70%), META (-0.65%), AMZN (-0.57%), MSFT (-0.13%), AAPL (+0.28%), and NVDA (-0.10%), underperformed compared to the broader market index. This dip in performance can be attributed to the recent surge in interest rates, as the upward rate movement continues to exert downward pressure on longer-duration assets, Innes added.
Nvidia’s Earnings Results Awaited with Anticipation
The market eagerly awaits the release of Nvidia’s earnings results, scheduled for Wednesday. The reception and reaction to these results are expected to have a significant impact on market sentiment in the coming days. Nvidia, a prominent chipmaker, finds itself among the few companies that have not been able to provide an additional boost to the market despite the overall positive earnings season.
According to Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, the fear of further tightening by the Federal Reserve and the prospects of higher interest rates, combined with negative news from China, have prevented investors from fully enjoying the better-than-expected earnings.
However, Tom Lee, the head of research at Fundstrat, believes that the recent sell-off will come to a halt, possibly before Federal Reserve Chairman Jay Powell delivers his speech at the Jackson Hole symposium later this week.
Lee highlights that institutional investors have expressed their concerns about the increasing interest rates as a major cause for worry in the equity market. He also suggests that the Federal Reserve is equally concerned about the significant rise in 10-year yields as it tightens financial conditions for markets, companies, and households.
In anticipation of Chairman Powell’s speech, Lee predicts that the Federal Reserve is likely to convey a more dovish stance. He points out that the Fed is unlikely to want to risk another market downturn like the one experienced in February 2023. While some may recall the hawkish statement made by Chairman Powell in August 2022, which resulted in a local top in stocks and a subsequent decline of 19% over the next eight weeks, Lee believes that the current situation is quite different.
On another note, Zoom Video Communications is set to report its results after the close of trading on Monday. However, there are no notable U.S. economic data releases scheduled for Monday.
Stay tuned for Nvidia’s earnings results and the subsequent market reaction.
