Wall Street looks set for another wild ride Tuesday as market volatility gauges hold near one-year highs ahead of a busy earnings session and the start of the Fed’s two-day policy meeting.
U.S. equity futures slumped lower Tuesday, following on from a furious late-session rally on Wall Street that lifted the Dow from a 1,000 point-plus decline to a modest closing bell gain, as investors look to a slate of top-tier earnings and the start of the Federal Reserve’s two-day policy meeting.
Russia tensions remain a cloud over markets as well, with NATO declaring late Monday that it’s putting troops in the region on standby, and beefing-up its military presence in Eastern Europe, amid a massing of soldiers near the Ukraine border. President Joe Biden has also put more than 8,000 U.S. servicemen and women on high alert.
Market concerns regarding the Fed’s near-term policy tract, however, loom larger heading into the start of the Tuesday session, as slowing growth figures, alongside rising inflation data, puts the central bank’s plans for a series of 2022 rate hikes in a different light.
The CME Group’s FedWatch tool is pricing in only a 5.6% chance of a Wednesday increase, but expects the first of likely four hikes this year to begin in March.
The stock market is overreacting to Federal Reserve rate hike uncertainty and many investors are assuming that higher interest rates will lead to a prolonged stock market downturn, but we believe this assumption is false, as the relationship between stock prices and interest rates isn’t so simple,” said Julian Koski, chief investment officer of Rye, New York-based New Age Alpha.
“Investors should focus less on what the Federal Reserve may or may not do and instead focus more on the individual stocks they own and whether these stocks can deliver on the growth expectations that are baked into their valuations,” he added.
How companies manage their way through higher rates — as well as ongoing issues in global supply chains and rising employment costs — will likely be in focus today as investors get December quarter updates from Johnson & Johnson (JNJ) – Get Johnson & Johnson Report, General Electric (GE) – Get General Electric Company Report, 3M (MMM) – Get 3M Company Report, Verizon (VZ) – Get Verizon Communications Inc. Report, American Express (AXP) – Get American Express Company Report and Lockheed Martin (LMT) – Get Lockheed Martin Corporation Report prior to the start of trading.
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Collective S&P 500 profits are forecast to rise 23.1% for the fourth quarter, to $434.4 billion, before slowing to just 7.5% for the first three months of the year.
On Wall Street, futures tied to the Dow are indicating a 250 point opening bell decline following last night’s 3.5% peak-to-trough rally, while those linked to the S&P 500 are priced for a 60 point retreat. Nasdaq Composite futures are indicating a 285 point slide.
The CBOE Group’s VIX volatility gauge, however, remains within touching distance of its one-year high, suggesting another wild ride Tuesday, particularly now that benchmark 10-year note yields are closing in on 1.8% in the overnight trading session.
A host of big-name stocks were on the move in pre-market trading, with Tesla topping the activity list following a move last night by Moody’s to boost the carmaker’s credit rating by two notches, to Ba1, ahead of its quarterly earnings on Wednesday.
General Electric (GE) – Get General Electric Company Report fell 2% after it posted stronger-than-expected fourth quarter earnings but fell short of revenue forecasts and issued a weak 2022 profit outlook.
Johnson & Johnson (JNJ) – Get Johnson & Johnson Report was also lower, falling 2.5%, after is published stronger-than-expected fourth quarter earnings Tuesday while noting that sales of its single-shot Covid vaccine could rise to around $3.5 billion this year.
International Business Machines IBM, meanwhile, jumped 2% after posting stronger-than-expected fourth quarter earnings late Monday in the first update since shedding its legacy infrastructure business to focus on cloud computing growth.
Microsoft (MSFT) – Get Microsoft Corporation Report will post its fourth quarter earnings after the bell, with analysts looking for record revenues of more than $50 billion and an adjusted bottom line of $2.31 per share.
Nvidia (NVDA) – Get NVIDIA Corporation Report shares, meanwhile, slumped 3.6% lower amid reports that the chipmaker is ready to abandon its $40 billion takeover of U.K.-based Arm Holdings.
In overseas markets, Europe’s Stoxx 600 was marked 0.46% higher by mid-day trading in Frankfurt, but closing tracking U.S. equity futures, while the MSCI ex-Japan index in Asia fell 1.4%.
