U.S. stock futures opened little changed Wednesday evening as investors continued to monitor a steady stream of corporate earnings results against a backdrop of elevated inflation and further Fed policy tightening.
During Wednesday’s regular trading day, the three major stock indexes ended mixed, with the Nasdaq weighed down by a more than 30% slide in shares of Netflix. The Dow eked out again, and the S&P 500 ended slightly lower.
The so-far mixed quarterly earnings results this reporting season have stirred up uncertainty over whether corporate profits will be able to bolster equity markets operating in an already challenging economic environment. With inflation running at its fastest rate in 40 years and weighing on economic activity, and the U.S. Federal Reserve on track to ramp up its tightening regime despite decelerating growth, many pundits have warned of further choppiness in risk assets.
“The big question is whether the earnings can really sustain this kind of a macro backdrop of slower growth and [tighter] Fed policy,” Deepak Puri, Deutsche Bank wealth management chief investment officer, told Yahoo Finance Live on Wednesday. “It seems certain companies can — historically that’s been the case. What’s different this time is really the trifecta, which is higher costs of capital, quantitative tightening, plus a lack of … a big fiscal stimulus.”
A similar market environment was seen in 2017 and 2018 when the Federal Reserve last raised interest rates before this year, Puri added. However, at that time, a reduction in the corporate tax rate under the prior administration had helped “cushion some of the burdens of a higher cost of capital,” Puri said.
“This time around, I’m not really seeing much fiscal spending coming our way,” Puri said. “So it could be one of those times where the market might be a little bit more volatile than what participants expect.”
Other pundits also suggested tepid profit growth this year may be insufficient to propel the market forward, especially in the case of a slowdown in tech company results, given that many of these names are some of the most heavily weighted in the major equity indexes.
“Here’s the biggest risk in my opinion to the broader market right now: The broader market is concentrated in just a handful of names. What happens if their earnings or guidance for the second quarter is very dismal, or if they have a second-quarter earnings report … that really surprises the downside? That’s when you’ll see that downdraft in the S&P, in my opinion,” Eddie Ghabour, co-founder and managing partner at Key Advisors Group, told Yahoo Finance Live on Wednesday.
“No one is bulletproof in this environment,” he added. “And I think being cautious hereafter the massive run-up we’ve seen in the last several years in risk assets is just a prudent thing to do. Because there will be some amazing buying opportunities that will come when this bubble bursts.”
Source By: finance yahoo