S&P 500 futures edge lower ahead of kickoff to earnings season

U.S. equities futures dipped Sunday evening as Wall Street looked ahead to big company earnings reports and key inflation data, on the heels of a strong employment report.

Futures tied to the Dow Jones Industrial Average slipped by 51 points, or 0.1%. S&P 500 futures fell 0.2% and Nasdaq 100 futures lost 0.4%.

On Friday the Dow and S&P finished trading slightly lower, while the Nasdaq Composite rose for a fifth straight day. All of the major averages secured a winning week after a stronger-than-expected jobs report Friday showed that the economic downturn worrying investors has not yet arrived and added to positive sentiment.

Treasury yields jumped, with the 2-year Treasury yield holding above the 10-year yield, an inversion many see as a recession indicator.

“While the markets ended in solid green for the week, investors should brace for continued volatility in July, with ongoing uncertainties looming with respect to inflation, Fed policy, recession concerns, the enduring Russia-Ukraine war, all as we also move into corporate earnings season,” said Greg Bassuk, chief executive officer at AXS Investments.

The jobs report, while good for the economy, could embolden the Federal Reserve to continue its aggressive rate hikes in the coming months to fight persistently high inflation. It will be tested this week with a slew of earnings from major banks and consumer inflation data this week on deck.

“With recessionary fears weighing on the markets, investors are hyper-focused on corporate earnings for greater clues about the health of corporate America and the broader U.S. economy,” Bassuk said.

“A sharper lens will be needed to dissect these earnings reports, as a strong second quarter might be accompanied by very conservative outlooks,” he added. “As commodity and other producer costs remain high, companies will be factoring in the extent to which those heightened prices can be passed on to consumers and, likewise, how to keep earnings vigorous amid economic, geopolitical and other key headwinds.

PepsiCo and Delta Air Lines are scheduled to report earnings Tuesday and Wednesday. JPMorgan Chase, Morgan Stanley, Wells Fargo and Citigroup are set to report at the end of the week.

Investors are also looking ahead to key inflation data this week. The June consumer price index will be released Wednesday and is expected to show headline inflation, including food and energy, rising above May’s 8.6% level.

“Investors expect more aggressive Fed rate hike actions, unless the inflation data shows an outsized reduction in prices, balanced against concerns that an over-aggressive boost in rates could tip the U.S. into recessionary territory,” Bassuk said.

The June producer price index is due out Thursday and the University of Michigan consumer sentiment report for July will be released Friday.