U.S. stock futures are indicating that Wall Street is set to reach fresh highs as traders embrace the cooling inflation outlook and shift their focus to the upcoming corporate earning season. Stock-index futures for the S&P 500, Dow Jones Industrial Average, and Nasdaq 100 all saw gains in early trading.
S&P 500 futures rose by 14 points or 0.3%, while Dow Jones Industrial Average futures gained 67 points or 0.2%, and Nasdaq 100 futures advanced by 88 points or 0.6%. These strong futures indicate a positive start to the trading day, building on the gains from the previous day.
On Wednesday, the Dow Jones Industrial Average rose by 86 points or 0.25% to reach 34,347, while the S&P 500 increased by 33 points or 0.74% to 4,472, and the Nasdaq Composite gained 158 points or 1.15% to 13,919.
Investors remain optimistic due to the news that U.S. headline inflation has dropped to its lowest level in over two years. This has bolstered expectations that the Federal Reserve is nearing the end of its campaign of interest rate hikes. As borrowing costs decrease, with the benchmark 10-year Treasury yield now at 3.83%, both the S&P 500 and Nasdaq Composite indices are poised to reach fresh 15-month highs. So far this year, the S&P 500 has gained 16.5% and the Nasdaq Composite has surged by 33%.
Stephen Innes, managing partner at SPI Asset Management, noted that the disinflation process looks increasingly benign, especially when set against a U.S. economy characterized by low unemployment and solid growth. This positive outlook has contributed to the sturdy performance of the markets.
Mohamed El-Erian, adviser to Gramercy and Allianz, echoed this sentiment, stating that the easing inflation has made investors more optimistic about U.S. growth.
This optimism is evident across global markets, with the Hang Seng in Hong Kong rising by 2.5% on Wednesday. Despite concerns over the U.S. dollar and Fed policy, the Hong Kong market continues to exhibit a ‘risk on’ tone.
The rally in the markets is expected to hinge on the reception of the second-quarter corporate earnings season. On Thursday, companies such as PepsiCo and Delta Air Lines will be publishing their numbers. However, the season will truly kick into gear on Friday when major banks like JPMorgan Chase, Citigroup, and Wells Fargo present their figures.
While overall S&P 500 earnings are anticipated to decline by 6.4%, largely due to losses in the energy sector, market participants await the release of economic updates on Thursday, including weekly initial jobless claims and June producer prices data.
Several Federal Reserve speakers are also scheduled for Thursday. San Francisco Fed President Daly is set to give a television interview, followed by Fed Governor Waller speaking later in the day.
In conclusion, stock futures are pointing towards a positive start for Wall Street as traders welcome the cooling inflation and shift their focus to the corporate earning season. The markets have shown strength, thanks in part to an encouraging U.S. CPI report. Optimism about U.S. growth has increased due to easing inflation, and global markets are exhibiting a ‘risk on’ tone. The second-quarter corporate earnings season will play a crucial role in sustaining the market rally.
