Dow futures jump over 200 points as earnings roll in

By Investor Empires On Apr 16, 2024

Dow futures popped on Tuesday, with US stocks eyeing a broader comeback as a wave of earnings reports lifted a market faced with bond yields at multimonth highs and rising tensions in the Middle East.

Dow Jones Industrial Average (^DJI) futures gained 0.6%, coming off a six-session run of losses. Futures on the S&P 500 (^GSPC) and the tech-heavy Nasdaq 100 (^NDX) also revived to hover above the flatline.

Stocks booked sizable losses on Monday as hot retail sales data fueled expectations that interest rates will stay higher for longer this year. Consensus is now for no interest rate cut until September as the strength of the economy gives reason for the Federal Reserve to take its time, though some believe politics could push policymakers to act earlier.

The major US gauges took a more upbeat tone as earnings reports flooded in before the bell. United Health (UNH) shares added almost 7% after the healthcare group beat quarterly profit estimates, even as it said it expects to take a $1.6 billion from a February cyberattack.

Investors were digesting more big bank results: Bank of America (BAC) reported that first-quarter profit dropped 18% year-on-year as a key revenue source weakened, while Morgan Stanley (MS) stock rose as it topped expectations. Elsewhere, BNY Mellon (BK) posted a profit beat while Johnson & Johnson (JNJ) reported a revenue miss. Also on the docket are results from United Airlines (UAL), among others.

Bond yields continued to rise after the 10-year Treasury yield (^TNX) touched 2024 highs on Monday. The yield was up about 5 basis points at around 4.65% early Tuesday.

Escalating tensions in the Middle East were still bubbling in the background, as investors watch for how Israel will decide to respond to Iran’s weekend attack as allies urge military restraint.

Live3 updates

Tue, April 16, 2024 at 7:55 AM EDT

Chatting interest rates and markets with BNY Mellon’s CEO

I just had a good post earnings chat with BNY Mellon (BK) CEO Robin Vince (they reported this morning, stock up 2% pre-market).

Appreciated his thoughts on rates and markets to me (below. I took them as inflationary!

“As I think about the path of interest rates, there are a few things that are going on in the world. Clearly, we’ve got geopolitical risks that are out there and just today the potential escalation of the ongoing (Israel/Iran) conflict – that’s certainly a risk. We’ve got consistently, relatively high inflation in the US and that’s clearly a bit of a risk. So that brings into some question the path of interest rates. We’ve got fiscal challenges in the US and the continued (high) amount of issuance of US Treasuries from a volumes point of view. That can be quite good for our business, but as a citizen and a taxpayer, you have to worry a little bit about the path of debt sustainability in the United States. So there’s a lot going on.

Now, I’ll give you the flip side as well because what we see is really strong, underlying underpinnings for the US economy and it’s not to say that we won’t have a correction at some point in the stock market – that could well happen. It’s not to say we couldn’t have a recession at some point. That’s kind of inevitable at some point in time. But when you look at the advantages that the US has right now, it’s got a lot of significant advantages on a relative basis in the world. It’s a great destination for investment. You can hear that from CEOs internationally. You can see it from investors putting their money into the United States, you can see the performance of the stock market, and there are a lot of tailwinds that are coming into the markets right now. So I would say it’s a place you have to be prepared for all eventualities. Could we see the Fed stay on hold, maybe. Could we see the Fed cut rates this year? Probably. Could we see the Fed hike rates? Not impossible. You got to be prepared, but at the same time, the underlying direction of travel for the US is pretty positive.”
Tue, April 16, 2024 at 7:02 AM EDT

Bring on those Starbucks earnings

Starbucks (SBUX) earnings will be out in a few weeks, and note upon note I have consumed suggest the report could be ugly.

Most of the concern on Starbucks at the moment stems from falling store traffic in the US, in part because prices for what Starbucks sells has gone through the roof. I paid $7 for a venti cold brew at a NYC store a week ago (I have been cutting back trips to Starbucks)!

Bernstein is out this morning with a fresh look at store traffic, and it isn’t pretty.

Starbucks shares year to date: -11.3%.

The ice cold traffic trend at Starbucks. (Bernstein)
Tue, April 16, 2024 at 6:56 AM EDT

Markets quote of the morning….

Stock futures have been all over the map this morning after Monday’s hot retail sales report driven drubbing.

The indecision on the part of investors comes as they are still clinging to hopes of a June interest rate cut, which seems unlikely given how the macro data has trended in April.

I think JP Morgan’s strategy team offers up a good blunt take on markets this morning as if to level set investors:

“For a market reliant on immaculate disinflation, a dovish Fed reaction function, and diminishing tail risks on growth, the continuation of hot growth and inflation data can bring us to a tipping point where a tighter stock vee bond risk premium finally produces a market correction. Inflation risks are also compounded by upside risks to oil due to geopolitical developments related to Russia and risk of further escalation in the Middle East. Additionally, investor positioning is elevated, with cash allocations at historical lows.”