Dow, S&P Futures Rise Ahead of Earnings; Tariffs Eyed
As the US stock market prepares for a key week of earnings, futures for the Dow Jones Industrial Average and S&P 500 index rose early Wednesday, setting a positive tone for the day’s trading. The gains came ahead of highly anticipated earnings reports from two of the world’s most recognizable brands, McDonald’s and Disney.
As of 6:30 am ET, Dow futures were up 0.37%, while S&P 500 futures rose 0.35%. The gains were modest, but a welcome respite from the recent volatility that has plagued the markets. The Nasdaq futures, however, lagged behind, rising just 0.2% amid concerns over the performance of AI-related stocks.
The cautious optimism in the futures market is likely due to the slew of earnings reports scheduled for release this week. McDonald’s, the world’s largest fast-food chain, is set to report its quarterly earnings on Wednesday, with analysts expecting a modest increase in revenue. Disney, the media and entertainment giant, will follow suit on Thursday, with expectations of a slight decline in revenue.
Despite the optimism surrounding the earnings reports, strategists are warning that the Trump-era tariffs pose the biggest risk to the market. As the US and China continue to engage in a trade war, the impact on global trade and economic growth remains a significant concern.
“The tariffs are still a major overhang on the market,” said Michael Antonelli, market strategist at Robert W. Baird. “We’re heading into a seasonally weak phase, and the tariffs are a big uncertainty factor.”
Antonelli’s comments are echoed by other strategists, who note that the tariffs have already had a significant impact on the global economy. The US-China trade war has led to a decline in global trade, with the World Trade Organization estimating a 1.2% decline in global trade in 2019.
The tariffs have also had a significant impact on the US stock market, with many companies reporting weaker-than-expected earnings due to the trade war. In recent months, companies such as Caterpillar, Boeing, and 3M have all reported disappointing earnings, citing the impact of the tariffs.
In addition to the tariffs, strategists are also cautioning investors to be wary of the seasonally weak phase the market is entering. Historically, the summer months have been a challenging time for the stock market, with many investors taking profits and heading for the sidelines.
“Growth stocks have been doing well, but we’re getting into a seasonally weak period,” said Mark Hackett, chief of investment research at Nationwide Investment. “I’m advising clients to focus on large-cap stocks and financials, which tend to do better during these periods.”
In terms of sector performance, growth stocks have been the clear winners in recent months. The technology sector, which is heavily weighted with growth stocks, has been leading the charge, with many AI-related stocks experiencing significant gains.
However, the Nasdaq futures’ 0.2% gain early Wednesday suggests that the growth stock rally may be losing steam. The AI-related stocks, which have been driving the growth stock rally, have been experiencing significant pullbacks in recent days.
Despite the concerns surrounding the tariffs and seasonally weak phase, the futures market is still indicating a positive tone for the day’s trading. The Dow and S&P 500 futures’ gains suggest that investors are optimistic about the earnings reports and are willing to take on some risk.
As the market enters this critical week of earnings, investors would do well to keep a close eye on the tariffs and the seasonally weak phase. While the growth stocks have been doing well, it’s essential to diversify a portfolio and focus on large-cap stocks and financials, which tend to do better during these periods.
In conclusion, the Dow and S&P 500 futures’ early gains suggest a positive tone for the day’s trading, but strategists are cautioning investors to be wary of the risks posed by the Trump-era tariffs and seasonally weak phase. As the market enters this critical week of earnings, investors would do well to exercise caution and focus on the fundamentals.
