Stock-index futures advance after worst week for the S&P 500 since March

What’s driving markets

Buyers are reasserting their dominance early Monday, after the S&P 500 shed 2.3% last week, its biggest weekly decline since March.

A bullish run that took the Wall Street benchmark to 16-month highs came to a halt as concerns about elevated Treasury issuance pushed bond yields higher and investors parsed a mixed bag of corporate earnings.

The lurch higher in bond yields — which saw the 10-year Treasury yield
BX:TMUBMUSD10Y
touch 4.2% for the first time since November — left stocks looking relatively less attractive, according to some analysts.

“The difference between the expected earnings yield of the S&P 500 and the yield on the 10-year Treasury bond has decreased to around 1%. We haven’t seen this level since the tech bubble burst in 2002. It’s important to remember that high valuations alone are not enough to cause issues, but the current yield environment suggests that things may be getting a bit expensive,” said Stephen Innes, managing partner at SPI Asset Management.

“[I]investors will monitor U.S. yields closely, as a rise could harm global stocks, particularly if this week’s U.S. CPI numbers exceed projections,” Innes added.

The CPI report will be published on Thursday. Economic data due Monday include the consumer credit report for June at 3 p.m. Eastern.

Meanwhile, the second quarter earnings season continues with Tyson Foods
TSN,
+0.34%,
Paramount Global
PARA,
+3.58%,
and KKR
KKR,
+1.60%
among those reporting results on Monday.

Earnings have not provided the market with the support some may have hoped for. With 84% of the companies in the S&P 500 having reported earnings for the second quarter, 79% of them have reported actual earnings per share above the mean EPS estimate, which is above the 5-year average of 77% and above the 10- year average of 73%, according to FactSet.

However, John Butters, senior earnings analyst at FactSet, notes that companies that have reported positive earnings surprises have seen an average price decrease of 0.5% two days before the earnings release through two days after the earnings release — well below the 5-year average price increase of 1.0% during this same window for companies reporting positive earnings surprises.

“[I]f this is the final percentage for the quarter, it will mark the largest average negative price reaction to positive EPS surprises reported by S&P 500 companies for a quarter since Q2 2011,” said Butters.

On a technical note, Jonathan Krinsky, strategist at BTIG, said that after last week’s decline, the S&P 500 is now looking to test support levels.

“Initially the rising 50-day moving average at 4406, but more meaningful support comes in at 4200-4300. A test of 4200 would be circa 9% off the recent highs, which we think is reasonable even if this uptrend is set to continue later this year,” Krinsky.