Futures subdued as investors brace for tepid earnings season

FILE PHOTO:  Traders work on the floor at the NYSE in New York
FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., April 4, 2019. REUTERS/Brendan McDermid/File Photo

April 8, 2019

By Shreyashi Sanyal

(Reuters) – U.S. stock index futures edged lower on Monday after the S&P 500 logged a seven-day winning streak, as investors braced for what could be the first corporate earnings decline since 2016.

With major banks slated to kick off the earnings season later in the week, analysts are expecting a 2.2 percent fall in S&P 500 earnings in the first quarter, according to Refinitiv data.

Still, the U.S. Federal Reserve’s decision to suspend its three-year campaign to tighten monetary policy and hopes of a trade deal with China have lifted the benchmark index to its highest level since Oct. 9, putting it just 1.6% below its record closing high.

“While we underestimated the impact of the Fed’s pivot on equity prices, we see the earnings recession as just the beginning,” Morgan Stanley analysts led by Michael Wilson wrote in a note.

“We think there will need to be some evidence of a real turn in earnings growth for U.S. stocks to advance much further.”

The S&P 500 is trading 16.6 times its next 12-month earnings estimate, up from 14.6 times during the peak of December sell-off but below the 17.3 times at its record high hit in late September.

Taking some air out of Dow futures was Boeing Co, which slipped 4.1% in premarket trading following the planemaker’s decision to cut production of its 737 aircraft by nearly 20%.

At 7:05 a.m. ET, Dow e-minis were down 82 points, or 0.31%. S&P 500 e-minis were down 3.25 points, or 0.11% and Nasdaq 100 e-minis were down 7.75 points, or 0.1%.

Better-than-expected job growth in March helped the S&P 500 clock its best stretch of gains since October 2017. The report also helped allay fears of an economic slowdown, which has periodically roiled financial markets over the past year.

Investors are also closely watching for developments in U.S.-China trade negotiations. The White House said on Friday after three days of trade talks with Chinese officials in Washington that the negotiations “made progress on numerous key issues” but “significant work remains.”

Among other stocks, General Electric Co fell 5.3% after J.P.Morgan downgraded the conglomerate’s shares to “underweight” from “neutral”.

Micron Technology was down 1.8% after Cowen and Co cut its rating on the chipmaker’s stock to “market perform” from “outperform”.

Procter & Gamble Co climbed 1.1% after Wells Fargo raised its rating on the company’s stock to “outperform” from “market perform”.

(Reporting by Shreyashi Sanyal and Sruthi Shankar in Bengaluru; Editing by Anil D’Silva)

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