Stock futures sank on Monday, pointing to a lower open on Wall Street even as second-quarter earnings results reflect a strengthening economic rebound, yet rising worries over inflation and the resurgence of new COVID-19 infections rattled investors.
This week’s batch of earnings will include industry leaders like Netflix (NFLX) and Johnson & Johnson (JNJ), offering a fuller picture of how companies are faring as more parts of the economy reopened in the spring and early summer. All eyes will also be on retail trading upstart Robinhood, which early Monday filed its prospectus to go public at a valuation of $35 billion. The platform is targeting a $2 billion capital raise, and aims to price the stock within a range of $38 to $42 per share.
On Friday, major benchmarks gave up early gains and closed in the red as traders digested a slew of earnings results, and June consumer spending data that blew away expectations. However, a print on consumer sentiment disappointed, hinting at growing price pressures that may derail the recovery.
In Europe’s Monday session, bourses sank as the United Kingdom celebrated its “Freedom Day”, which ironically began with the Prime Minister and the Chancellor having to isolate after being notified they came into contact with someone who was COVID-19 positive.
The incident refocused attention on the Delta variant, which is driving a surge of new cases across the U.S., and sent the safe-haven 10-year Treasury bond yield (TNX) to its lowest levels since early March.
“Concerns that the Delta mutation will slow or even reverse the recovery efforts appear to be sapping risk-taking appetites,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Last week, Federal Reserve Chair Jerome Powell suggested it was still too early for the central bank to step in and dial back some ultra-accommodative monetary policies to rein in inflation, given the labor market and other areas of the economy still need to recover more fully from the pandemic.
“The composition of recent data suggests that inflation will largely prove transitory as the Fed has stated,” said Ryan Detrick, LPL Financial’s chief market strategist, in a note to clients last week.
“Just how long ‘transitory’ will prove to be is the big question. We are in the middle of the season when we expected to see some hot prints, so this week has not necessarily been a surprise,” Detrick added. “But with each passing report market participants will be increasingly anxious to see those numbers start to moderate.”
Against the backdrop of surging demand and prices, Corporate America continues to surprise investors to the upside with second-quarter earnings results. About 8% of S&P 500 companies have reported results so far, mostly banks. Of those reporting, 85% have topped estimates, according to FactSet data.
Banks including Bank of America (BAC), JPMorgan Chase (JPM) and Morgan Stanley (MS) have topped consensus estimates, but have also showed signs of slowing growth beneath the hood in core business segments, as loan demand and fixed-income trading came in lighter than expected.
Late Sunday, Zoom (ZM) — the company that became synonymous with remote working during COVID-19 lockdowns — announced an all-stock $15 billion deal to buy cloud provider Five9. The video communications standout is facing stiffening competition from the likes of Facebook (FB) and Google (GOOG), both of which are ramping up their video capabilities.
Meanwhile, Wall Street is cautiously eyeing a growing resurgence of COVID-19 infections, as the Delta variant takes hold. Last week, Los Angeles revived its indoor masking policy amid a jump in new coronavirus diagnoses, and as the U.S. case count set a three-month high — underscoring how the mass vaccination effort appears to have lost momentum.
7:00 a.m. ET Monday: Stock futures fall as earnings season gears up
Here were the main moves in markets, as of 7:01 a.m. ET:
S&P 500 futures (ES=F): 4,284.25, -34.25 (-0.79%)
Dow futures (YM=F): 34,188.00, -376.00 (-1.09%)
Nasdaq futures (NQ=F): 14,614.75, -55.75 (-0.38%)
Crude (CL=F): $69.85 per barrel, -$1.96 (-2.73%)
Gold (GC=F): 1,803.10 per ounce, -$11.90(-0.66%)
10-year Treasury (^TNX): yielding 1.24%, lowest since March 4
Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek