U.S. stocks rise as inflation data, corporate earnings loom

What’s driving markets

The S&P 500 index broke a three-day losing streak on Monday after benchmark bond yields pulled back from recent highs. Yields eased further early Tuesday, helping equity index futures mostly hold their ground in early action.

For example, the 10-year Treasury
TMUBMUSD10Y,
3.988%
note fell 2.1 basis points to 3.985% , down from 4.006% late Monday.

When it comes to Tuesday’s trading action, call it an upbeat breather – for now at least.

“Markets started the week in a holding pattern, but a rates rally in the U.S emerged as the main theme on Monday that sent the 10-year Treasury yield back beneath 4% again,” said Henry Allen, strategist at Deutsche Bank.

“The decline in yields followed some dovish tones in usually second-tier U.S. data [softer household inflation expectations and lower used car prices], which comes ahead of tomorrow’s all-important U.S. CPI print,” Allen added.

The consumer-price index June report is expected to show headline annual inflation falling to 3.1% having hit a multi-decade peak of 9.1% a year before. However, core inflation, which strips out volatile items like energy and food prices, is expected to be more elevated at 5%.

Read also: S&P 500 could surge 100 points this week on inflation data, says Fundstrat’s Lee

The June inflation print is the last big economic data point before the Federal Reserve’s next meeting on interest rates. The central bank’s Federal Open Market Committee is scheduled to meet in two weeks, on July 25 and 26.

There’s a more than 92% chance of a 25 basis point increase to the federal funds rate at the upcoming meeting, according to the CME FedWatch Tool.

However, with the market pricing in the possibility that the Federal Reserve may follow up an interest-rate hike this month with another later in the year to lower inflation to its 2% target, there is an opportunity for a pleasant surprise for equity bulls, according to some analysts.

“A weaker than forecast figure could signal that inflation is moving tellingly towards the Fed’s target, which could result in a brief rally if the consensus then changes to one more hike this year as opposed to the two currently in place,” said Richard Hunter, head of markets at Interactive Investor.

Then come the second quarter corporate earnings. Mega banks like JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc.  will all announce their results on Friday. The first quarter unfolded amid bank sector failures like Silicon Valley Bank. Analysts will be keenly curious to see how the big banks moved on from there.

Companies in focus

• Amazon
  AMZN,
  +0.86%
  shares are higher, up 1.3%, as the e-commerce giant began its Prime Day summer sale which actually lasts two days. The tech giant will be hoping for a boost as sales growth, excluding Amazon’s cloud division, was a meager 8% in the most recent quarter, far below the pre-pandemic pace.

• Microsoft Corp.
  MSFT,
  -0.74%
  shares are lower, off 0.6%. The company is reportedly planning additional layoffs after it already announced 10,000 layoffs earlier this year.

• Uber Technologies Inc.
  UBER,
  +1.52%
  shares are up 0.8%. This is after reports that its Chief Financial Officer, Nelson Chai, is planning to leave the company though the timing of the exit is undetermined. The exit would be the highest-level exit at the company since it went public in 2019.

• Bank of America Corp.
  BAC,
  +0.65%
  shares are up 0.7%, after orders from federal regulators to pay $250 million for allegedly charging unfair junk fees, withholding credit card rewards and opening fake accounts. The bank “voluntarily reduced overdraft fees and eliminated all non-sufficient fund fees in the first half of 2022,” a spokesperson said.