As US equities trade near record levels, investors are refocusing on corporate earnings following weeks of volatility driven by technology stock valuation concerns and the Middle East conflict. However, an oil price rebound suggests lingering doubts about whether a diplomatic resolution between the US and Iran can be reached quickly.
Currently, Dow futures are up 1.08%, S&P 500 futures are up 0.36%, and Nasdaq futures have gained 1.16%.
The MSCI global stock index has edged up 0.05%. In Europe, the pan-European Stoxx 600 index is 0.3% higher and on track for a record closing high, with the technology sector index rising 1.7%.
On the individual stock front, Bayer has risen over 4% after reporting better-than-expected earnings. BP has gained 1.3%, also buoyed by an earnings beat. Zalando has plunged 16% after lowering its full-year guidance. Deutsche Lufthansa has declined after warning of uncertainty from volatility in aviation fuel prices.
Despite these gains, European markets face some headwinds. Some economists warn that the economic outlook for the region is more challenging compared to other parts of the world, citing reasons such as drought impacting Rhine River shipping and ongoing pressure on natural gas inventories.
In the US, Palantir Technologies Inc. is up 16% in pre-market trading after raising its full-year revenue forecast. Meanwhile, SpaceX and Advanced Micro Devices (AMD) are scheduled to report their earnings later today.
Jefferies economist Mohit Kumar stated, "We are increasing our exposure to sectors less affected by rising interest rates. Technology and financial stocks will be our preferred sectors for ramping up portfolio risk appetite." He added, "A core factor supporting our medium-term bullish view is the substantial amount of cash still present in the market system."
The earnings season so far has been positive
The recent rebound in US tech stocks follows a period of intense volatility. Over the past month, investors have questioned whether the billions of dollars companies are pouring into artificial intelligence will ultimately translate into stronger growth and profits. However, the earnings season has been performing well so far, alleviating some market concerns. According to data, 86% of S&P 500 companies have reported earnings that beat market expectations, the highest level in five years, with earnings per share growing 29% year-over-year.
Analysts at Eastspring Investments, including Chief Investment Officer Vis Nayar, noted in a report, "The artificial intelligence capital expenditure boom remains intact."
Jeff Buchbinder, Chief Equity Strategist at LPL Financial, commented, "Economic growth resilience, strong corporate earnings, and AI-driven investment are providing a favorable backdrop for the stock market. While investors have reason to focus on the increasing capital expenditures from large cloud computing companies and closely monitor developments in the Middle East, we believe these risks will be offset by strong earnings growth momentum."
SpaceX's inaugural earnings report draws significant attention
Another potential challenge for the market comes from SpaceX's first earnings report since its listing, due later on Tuesday. This event also marks the beginning of one of the largest stock lockup expirations in capital market history. Up to $116 billion worth of shares could become eligible for sale next month. Currently, SpaceX stock is trading more than 15% below its closing price on the first day of trading, June 11.
Chris Weston, Head of Research at Pepperstone Group, stated, "The bigger issue for SpaceX remains the impending supply of shares. The market feels many investors still want to hold the stock, but they are waiting for the selling pressure from the lockup expiry to subside."
Other US companies reporting earnings today include Pfizer, Apollo Global Management, Spotify, McDonald's, Merck, and Caterpillar. Meanwhile, Amazon is trading lower in pre-market after Chairman Jeff Bezos filed plans to sell over $4 billion worth of company stock.
Conflicting signals from the Middle East and an oil price rebound
In the Middle East, contradictory signals from the US and Iran are adding to market uncertainty. A recent attack on a shipping vessel in the Strait of Hormuz has once again highlighted the risks to global energy supplies. US President Donald Trump stated that the current US negotiating proposal is Iran's "last chance," while Tehran has indicated it is only negotiating with Oman and has no plans for talks with Washington. After several failed diplomatic attempts, investors remain cautious about any signals of peace negotiations.
Brent crude oil has risen 2.8%, breaking above $86 per barrel, after falling 4.7% on Monday. Oil prices had fallen sharply on Monday as the market believed geopolitical tensions in the Middle East were easing. Analysts at ING noted, "Oil prices fell sharply yesterday due to market optimism that a Middle East deal might be imminent. However, the market may once again be overly pricing in optimistic expectations... similar situations have occurred several times before, only for the situation to deteriorate again."
Shipping risks in the Gulf region persist. The UK Maritime Trade Operations (UKMTO) reported on Monday that a cargo ship was hit by an unknown object off the coast of Oman.
Yen intervention viewed as more symbolic
In the currency market, the dollar index, which measures the greenback against a basket of major currencies, is largely flat, remaining near its lowest levels in the past two months. The yen has given back some of its gains after a sharp rise fueled by coordinated US and Japanese intervention. The dollar is up 0.3% against the yen, trading around 157.70. The US and Japanese governments coordinated intervention in the foreign exchange market last week, strengthening the yen for the first time in 15 years. However, market participants are concerned that Japan's expansionary fiscal policy and the Bank of Japan's slow pace of interest rate hikes could continue to pressure the yen.
Macro strategist Skylar Montgomery Koning commented, "The yen intervention is more symbolic than decisive. A sustained rally in the yen would likely require significant dollar selling or broader international participation, neither of which seems likely at the moment."
Thierry Wizman, Global FX and Rates Strategist at Macquarie Group, stated, "Factors that could trigger a short-covering rally in the yen and support it include: falling oil prices, further tightening by the Bank of Japan in September and beyond, and a moderate adjustment to fiscal plans by Prime Minister Sanae Takaichi to restore confidence in Japan's debt sustainability."
Market awaits first round of US employment data
US Treasury prices have fallen as oil rebounds from the previous session's decline. The yield on the 10-year US Treasury note is up 3 basis points to 4.71%. Last week, long-term US Treasury yields hit their highest level in 19 years after remarks from Federal Reserve Chair Kevin Warsh, which sparked market concerns. Market participants believe Warsh does not favor rate hikes, and upcoming economic data could provide justification for maintaining the current policy stance. The first batch of US employment data is due for release later today.
Eurozone government bond yields remain largely stable. According to LSEG data, the yield on the German 10-year bond is steady at 3.148%. The market remains primarily focused on developments in the Middle East. Eurozone bond supply is declining this month due to a seasonal slowdown in issuance.
In commodities, London copper prices have risen to their highest level in two months, approaching $14,000 per ton. Traders are monitoring increasing copper inventories in the US market while awaiting a potential decision from the US president on copper import tariffs.
Citadel Securities has stated that while speculative enthusiasm among retail investors has noticeably cooled, the core drivers behind the US stock market's historic highs this year remain "intact." The market is gradually shifting from being driven by capital flows to being driven by corporate fundamentals. Scott Rubner, Head of Equities and Equity Derivatives Strategy at Citadel Securities, noted in a recent report, "The market is moving from a flow-driven environment back to a phase increasingly dominated by corporate earnings, stock buybacks, and the macroeconomic environment." Rubner believes that after "excessive speculation" has been washed out, the fundamentals of the US stock market are actually healthier. The recent batch of corporate earnings reports has been strong overall, with most companies beating already high market expectations, providing support for the subsequent market trajectory.
The "sleeping giant" is stirring: The $30 trillion US Treasury market, long considered a "sleeping giant" and the core of the global financial system, is exhibiting significant changes. Over the next few days to weeks, investors are concerned that sharp volatility in Treasury yields could spill over into other asset markets like stocks. After a period of gains in early July, long-term Treasury yields have accelerated their upward movement in the final week of July. Some market participants believe this trend reflects investors testing the Fed's resolve to curb inflation. Historical experience shows that when Treasury yields approach current levels, financial stress tends to spread to other markets and could weigh on stock prices. As investors begin to hedge against further rate increases, the ICE BofA MOVE index, which measures expected volatility in the US Treasury market, has been rising and has hit its highest level since May. Meanwhile, demand for put options on the iShares 20+ Year Treasury Bond ETF has also increased, pushing the put-to-call ratio higher.
Key stocks in focus
McDonald's is up 1.9%. The company reported adjusted earnings per share of $3.38, beating the Refinitiv consensus estimate of $3.32, but revenue of $7.1 billion slightly missed the market expectation of $7.13 billion.
Merck is up more than 1%. The company reported an adjusted loss per share of $0.13 on revenue of $16.61 billion, compared to the Refinitiv analyst expectations of a loss of $0.27 per share on revenue of $16.36 billion. The pharmaceutical giant also raised its full-year revenue guidance.
Palantir Technologies is up 15%. The company's second-quarter results significantly exceeded expectations, driven by nearly 150% explosive growth in US commercial revenue.
Caterpillar is up 8%. The company's second-quarter results surpassed analyst estimates across the board, with adjusted earnings per share of $8.17 and revenue of $20.54 billion, compared to Refinitiv consensus estimates of $6.20 per share and $19.34 billion in revenue.
Pfizer's stock is moving higher after its second-quarter results beat Wall Street expectations. The company reported adjusted earnings per share of $0.77 on revenue of $15.03 billion, compared to analyst expectations of $0.68 per share and $14.41 billion in revenue. Pfizer also raised the lower end of its full-year revenue guidance.
On Semiconductor is up 7% after its second-quarter results exceeded expectations. The company reported adjusted earnings per share of $0.74 on revenue of $1.6 billion, compared to Refinitiv expectations of $0.71 per share and $1.59 billion in revenue. The company's profit margins also performed better than expected.
Snap, the parent company of Snapchat, is up 5% after reporting its second-quarter results. The social media company reported a loss per share of $0.10, with no directly comparable Refinitiv consensus estimate. Revenue of $1.6 billion topped the expected $1.54 billion. The company's key metrics, including global daily active users and average revenue per user, also exceeded expectations.
Whirlpool's stock is largely flat. The company's second-quarter loss was wider than analysts had anticipated, reporting an adjusted loss per share of $0.21, compared to market expectations of a loss of just $0.05. Revenue of $3.52 billion also fell short of expectations. Additionally, the company lowered its full-year earnings guidance.
Home furniture retailer Wayfair is down 4%. Despite reporting second-quarter results that beat expectations, with adjusted earnings per share of $0.95 on revenue of $3.52 billion, compared to Refinitiv expectations of $0.89 per share and $3.47 billion in revenue, the stock is still trading lower.
DigitalOcean is down 11%. The company reported second-quarter earnings per share of $0.45 on revenue of $281 million, beating Refinitiv analyst expectations of $0.26 per share and $279 million in revenue, though the stock declined.
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