Solid pre-market earnings could offset lingering inflation concerns and send stocks higher Wednesday following better-than-expected updates from Procter & Gamble, UnitedHealth and Bank of America.
Updated at 8:40 am EST
U.S. equity futures moved higher Wednesday, while Treasury yields extended their recent surge amid bets that the Federal Reserve will quicken the pace of near-term rate hikes as inflationary pressures continue to build in the world’s largest economy.
Stocks were hit hard by the prospects of faster rate hikes yesterday, while weaker-than-expected quarterly earnings from Goldman Sachs (GS) – Get Goldman Sachs Group, Inc. Report kept the Dow Jones Industrial Average deeply in the red, closing out its worst day since November, and pushed the S&P 500 into a year-to-date decline of around 4%.
A March rate hike is all but assured from the Fed, according to interest rate futures, but bets on a 50 basis point move are starting to creep in, lifting 2-year Treasury note yields to a February 2020 high of 1.075% in early New York trading.
Further upside pressures on oil prices, which have lifted WTI crude to the highest levels in seven years, were evident overnight amid disruption in a pipeline between Iraq and Turkey, while benchmark 10-year German bund yields traded in positive territory for the first time since 2019.
Bond market moves are likely to loom large over the markets again Wednesday, although a series of blue-chip earnings reports — including updates from Dow components UnitedHealth (UNH) – Get UnitedHealth Group Incorporated Report and Procter & Gamble (PG) – Get Procter & Gamble Company Report — will also provide direction prior to the start of trading.
“The market is trying to figure out what level of interest rates makes sense given the Federal Reserve’s rate hike plans in 2022, which is adding significant short-term volatility to the stock market,” said Richard Saperstein, chief investment officer at New York-based Treasury Partners. “This path to normalization can only occur because of a strong economy and a strong economy should benefit corporate earnings.”
Procter & Gamble, in fact, gave the big board a lift with stronger-than-expected second quarter earnings powered by the consumer brands group’s ability to raise prices in the face of rising freight and commodity costs.
Futures tied to the Dow are indicating a 125 point opening bell gain while those linked to the S&P 500 are priced for a 21 point bump to the upside following stronger-than-expected December housing starts data.
Nasdaq Composite futures are indicating a 100 point opening bell gain as benchmark 10-year Treasury note yields climb to a post-pandemic high of 1.895% in overnight trading.
Bank of America (BAC) – Get Bank of America Corp Report shares were a notable pre-market moving, rising more than 3% after the lender topped Street forecasts for its Q4 earnings and said its total expenses for the coming year would largely match 2021 levels, removing a key profit concern in an otherwise bullish outlook.
Morgan Stanley MS gained 1% after posting stronger-than-expected fourth-quarter earnings thanks to robust performances in the bank’s wealth management and asset management groups.
UnitedHeath (UNH) – Get UnitedHealth Group Incorporated Report was also on the move higher after again seeing Optum revenues drive top and bottom line gains for the country’s biggest health insurance group.
Ford (F) – Get Ford Motor Company Report shares were active, too, gaining 01.2% after the carmaker said late Tuesday that its early investment in Rivian Automotive (RIVN) – Get Rivian Automotive, Inc. Class A Report would add around $8.2 billion to its fourth quarter bottom line.
U.S. chip stocks jumped higher, as well, after semiconductor equipment maker ASML NV (AMSL) posted stronger-than-expected fourth quarter earnings and issued a robust near-term outlook for the sector.
ASML said demand for its extreme ultraviolet lithography systems, or EUV, machines, which design complex chips used by, sector titans such as Samsung Electronics, Intel and Taiwan Semiconductor and cost as much as $120 million, would help overall sales grow more than 20% this year, easing concerns that a fire in one of its German-based factories would impact supplies.
Nvidia (NVDA) – Get NVIDIA Corporation Report shares were marked 0.5% higher in pre-market trading Wednesday while Advanced Micro Devices (AMD) – Get Advanced Micro Devices, Inc. Report gained 0.1% to $132.00 each. Intel (INTC) – Get Intel Corporation Report was marked 0.2% higher at $54.86 while Micron (MU) – Get Micron Technology, Inc. Report gained 0.85% to $93.65 each.
In overseas markets, Europe’s Stoxx 600 was marked 0.35% higher by mid-day trading in Frankfurt while Japan’s Nikkei 225 closed 2.8% lower in Tokyo thanks in part to a 12.8% slump for Sony Group following yesterday’s planned $69 billion takeover of video game maker Activision Blizzard (ATVI) – Get Activision Blizzard, Inc. Report by Microsoft (MSFT) – Get Microsoft Corporation Report.
