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Investors have taken cautious positions on Fridays in recent weeks, fearing an escalation in the conflict in the Middle East over the weekend when markets are closed and they are unable to trade.
“It seems neither Israel nor Iran want an escalation in the crisis in the Middle East,” said Kazuo Kamitani, a strategist at Nomura Securities. “With a subsequent strike from either side not looking like it’s coming, investor concerns have eased somewhat.”
But expectations of Federal Reserve interest rate cuts and concerns about chip sector earnings will continue to keep investors on their toes, he said. Artificial intelligence chipmaker Nvidia led gains in big tech, jumping 4.4 per cent. Apple also rose after the iPhone maker was named a top pick for 2024 at Bank of America on optimism over its upcoming results.
About 180 S&P 500 companies — more than 40 per cent of its market capitalisation — are due to report their results this week. The biggest expectations are for the “Magnificent Seven” mega-caps, whose profits are forecast to rise nearly 40 per cent from a year ago, according to Bloomberg Intelligence. Microsoft, Google owner Alphabet, Facebook and Instagram parent Meta Platforms and electric carmaker Tesla are all reporting results this week.
“Just beating consensus estimates for earnings won’t be enough,” said Matt Maley at Miller Tabak + Co. “We’re going to have to see much better guidance from Corporate America if the stock market is going to resume its advance.”
Equity strategists at Wall Street’s top banks are split on whether companies can deliver on robust earnings forecasts. While Morgan Stanley’s Michael Wilson said he expects profit growth to improve as the economy strengthens, his counterpart at JPMorgan Chase, Mislav Matejka, argues that hot inflation, a stronger US dollar and geopolitical tensions are clouding the outlook.
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Traders were expecting the first rate cut from the Fed as most likely coming in September following Consumer Price Index data earlier this month, though July was also seen as possible.
“The big picture in equities is that they have been able to digest this push back in rate expectations,” said Karim Chedid, Blackrock’s chief investment strategist for iShares EMEA. “Now earnings have to deliver for them to continue to do well.”
Gold mining stocks had their worst trading session in two months as the price of bullion took a tumble amid signs of easing geopolitical tensions between Israel and Iran. Newmont Corp fell as much as 4.2 per cent and its rivals Barrick Gold and Agnico Eagle Mines also declined.
While Israel and Iran have traded attacks, raising concerns about an all-out-war in the region, Tehran has played down the impact and significance of Israel’s recent strike, saying on Monday that Israel has received the “necessary response at this stage.”
The fact that the Iran regime downplayed Israel’s response — and signalled no retaliation — has taken some risk premium out of the gold market, according to Nicholas Frappell, global head of institutional markets at ABC Refinery in Sydney. Monday’s bearish sentiment on oil also supported the idea of easing tensions in the Middle East, he added.
Crude oil fell as traders put the focus back on fundamentals with a rise in US stockpiles as the backdrop. US crude lost 0.35 per cent to $US82.85 a barrel and Brent fell 0.1 per cent to $US87.19 per barrel.
With Reuters, Bloomberg
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