US stock futures were trading slightly higher on Sunday evening, as investors prepared for a busy week of corporate earnings and economic data. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq 100 futures were all up by 0.2% as of 10:40 pm GMT.
The third-quarter earnings season will kick off this week, with some of the biggest names in the banking and technology sectors reporting their results. Among the companies that are expected to announce their earnings this week are:
- Bank of America (BAC), Goldman Sachs (GS), Morgan Stanley (MS) and Wells Fargo (WFC) in the financial sector
- Tesla (TSLA), Netflix (NFLX), IBM (IBM) and Intel (INTC) in the technology sector
- Lockheed Martin (LMT), United Airlines (UAL) and Johnson & Johnson (JNJ) in the industrial and healthcare sectors
Analysts are expecting strong earnings growth for most of the companies, as the US economy continues to recover from the pandemic-induced slowdown. According to FactSet, the S&P 500 companies are projected to report a 27.6% year-over-year increase in earnings per share for the third quarter, which would mark the third-highest growth rate since 2010.
Investors will be looking for signs of how the companies are coping with the challenges posed by supply chain disruptions, labor shortages, inflation pressures and rising interest rates.
Economic data to provide clues on inflation and consumer spending
In addition to the earnings reports, investors will also be paying attention to some key economic data that will be released this week. The data will provide more insights into the state of the US economy and the potential impact of the Federal Reserve’s monetary policy.
Some of the important economic indicators that will be released this week are:
- The New York Empire State Manufacturing Index and the Philadelphia Fed Manufacturing Index, which will measure the activity and sentiment of the manufacturing sector in October
- The retail sales and industrial production reports, which will show how much consumers and businesses spent and produced in September
- The building permits and housing starts data, which will reflect the demand and supply conditions in the housing market in September
- The consumer sentiment index, which will gauge the confidence and expectations of consumers in October
The most closely watched data will be the consumer price index (CPI) and the producer price index (PPI), which will reveal the level and trend of inflation in September. The CPI and PPI data will be released on Tuesday and Wednesday, respectively.
The inflation data will have significant implications for the Fed’s decision on when to start tapering its bond-buying program, which has been supporting the economy and the financial markets since the onset of the pandemic. The Fed has indicated that it may announce its tapering plan as soon as November, depending on the progress of the economic recovery and inflation.
The Fed has maintained that the current surge in inflation is transitory and largely driven by supply-side factors that will ease over time. However, some market participants are concerned that inflation may prove to be more persistent and force the Fed to raise interest rates sooner than expected.
Market sentiment remains positive despite headwinds
Despite the uncertainty surrounding inflation, interest rates and earnings, market sentiment remains positive as investors focus on the prospects of strong economic growth and corporate profits.
The major US stock indices ended last week with gains, as they shrugged off some disappointing data on consumer sentiment and jobless claims. The Dow Jones Industrial Average rose 0.9% for the week, while the S&P 500 gained 0.8% and the Nasdaq Composite added 0.1%.
The markets also received a boost from some positive developments on the political front, as Congress passed a short-term extension of the debt ceiling limit until December 3, averting a potential default by the US government. Moreover, President Joe Biden’s $3.5 trillion social spending plan moved closer to approval, as he reached a tentative agreement with some moderate Democrats on a lower price tag.
The markets are hoping that the fiscal stimulus package will provide more support for the economy and offset some of the headwinds from higher taxes and regulations.
