A Day Ahead View in US and Global Markets by Mike Dolan
Wall Street’s rally on Monday saw some relief precede the first two earnings reports from megacap “Magnificent 7” stocks, as US Vice President Kamala Harris appeared poised to replace Joe Biden as the Democratic nominee for the race from November to the White House.
A volatile few weeks for politics and stock markets has attention turning to quarterly earnings on Tuesday, with Alphabet and Google parent Tesla upgrading after the bell today.
Last week’s sudden rotation from big tech companies to small caps raised questions about how high the profit bar now is for expensive market giants, with stocks like Netflix stumbling despite beating forecasts and chipmakers being harmed by geopolitics.
A look back at the earnings season so far offers more solace.
Around 81% of those reporting to date have surpassed estimates, with overall annual profit growth for S&P500 companies still clocking in at a robust 11% – slightly above pre-season assumptions. The slower annual revenue growth of 4.5% is also slightly ahead.
And although this pace is expected to slow in the third quarter, current forecasts are for a reacceleration in 2025.
With the S&P500 recovering more than 1% on Monday, its best day in six weeks, the Information Technology index rose 2% – outperforming sectoral gains and breaking a four-day losing streak.
The VIX volatility gauge fell from three-month highs.
In a turnaround ahead of today’s updates, Israeli cybersecurity startup Wiz has ended negotiations with Alphabet over a $23 billion deal, which would have been the U.S. tech giant’s biggest acquisition ever, according to with a memo from Wiz seen by Reuters.
But the electoral race remains the main point of discussion.
Less than 36 hours after Biden stepped aside and endorsed Vice President Harris, she appeared to have secured the Democratic nomination on Monday night by winning the promised support of the majority of party delegates who will determine the outcome at next month’s convention. .
As another round of speculation about Harris’ choice as running mate now ensues, markets are already provisionally recalibrating electoral bets.
Although former President Donald Trump is still seen as the clear favorite to return to the White House, online betting site PredictIt shows that the probability of his victory has dropped to 60%.
The solidification of a clear two-horse race after weeks of uncertainty about the candidates saw Harris’s odds jump 17 points from last week to around 44% on Tuesday, as her campaign now begins in earnest. .
As a result, the somewhat cautious electoral stance to date has collapsed, with many of Trump’s so-called negotiations being slightly scaled back.
With another heavy week of Treasury debt auctions beginning with a $69 billion sale of two-year notes on Tuesday, Treasury yields sensitive to the fiscal implications of the election remained under wraps. The 2-30 year yield curve, which briefly turned positive last week, remains inverted.
Bitcoin also retreated.
The dollar was also mixed, falling against the Japanese yen on Tuesday as pressure mounted on the Bank of Japan to resume monetary tightening in that country.
Senior Japanese ruling party official Toshimitsu Motegi said the Bank of Japan should more clearly indicate its determination to normalize monetary policy, including through steady interest rate increases. The Bank of Japan will set rates on July 31.
Increasingly correlated in Asia, the yen’s strength came in conjunction with a small recovery in China’s yuan as well, despite Monday’s surprise interest rate cut by the People’s Bank of China.
Trump’s draconian tariff promises may also play a role.
But Chinese stocks posted their biggest single-day drop in six months, demonstrating the fragility of investor sentiment despite ongoing stimulus efforts.
China’s blue-chip CSI300 index closed down 2.1%, its biggest one-day drop since mid-January and ending a seven-session winning streak.
European stock markets were mixed on Tuesday, with the euro falling after the vice-president of the European Central Bank, Luis de Guindos, said that new data and macroeconomic projections will help the ECB to better reassess its position. monetary policy in September – when markets now see their next rate cut.
Back on Wall Street, stock futures were slightly ahead of the big earnings reports and with a limited economic diary.
Key developments expected to provide further guidance to US markets later on Tuesday:
* US June Existing Home Sales, July Richmond Federal Reserve Business Survey; Consumer confidence in July in the euro zone
* US Corporate Profits: Alphabet, Tesla, Comcast, Texas Instruments, Lockheed Martin, UPS, GE, GM, Invesco, Visa, Capital One, Moody’s, MSCI, Coca Cola, Kimberly-Clark, Chubb, HCA Healthcare, Freeport McMoRan, AO Smith, Pentair, Philip Morris, Avery Dennison, Danaher, PulteGroup, Quest, Seagate Technology, Sherwin-Williams Enphase Energy, CoStar, Genuine Parts, Packaging Corp of America
* G20 Finance Ministers and Central Bank Governors meet in Rio de Janeiro ahead of G20 Summit in Brazil
* European Central Bank Chief Economist Philip Lane speaks
* US Treasury sells $69 billion in 2-year notes
(Reporting by Mike Dolan; Editing by Sharon Singleton mike.dolan@thomsonreuters.com)
