Stock Futures Trade Sideways Ahead Of Fed Decision
U.S. stock futures were mixed after the major benchmarks pulled back from record highs, ending a five-day winning streak. No doubt, the recent Chinese regulatory crackdowns have been weighing on the stock market. Alphabet (NASDAQ: GOOGL) is trading higher during pre-market trading following a better-than-expected second-quarter earnings report. A rebound in travel-related advertising spending and continued growth in YouTube ads helped power revenue 61% higher to $51 billion.
“While the delta variant has the potential to spark renewed short-term volatility, we do not think it will pose a major threat to the bull market,” UBS wrote in a note to clients. “Overall, we remain optimistic about the outlook for the economy.”
Certainly, the strong earnings season may have provided support to stocks in the past few trading days. But volatility continues to haunt the stock market this week. This came as some investors remain worried about the pace of economic growth and inflation. And that has caused investors to struggle to find a direction in the stock market today. Dow futures were in negative territory, falling 0.13% as of 6:31 a.m. ET. Meanwhile, S&P 500 and Nasdaq 100 futures were in positive territory, rising 0.03% and 0.09% respectively.
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Apple Profit Sets Record On Strong iPhone Sales
Apple (NASDAQ: AAPL) reported its strongest quarter ever after the closing bell on Tuesday, with a near doubling of its profits and a whopping iPhone beat. Apple’s iPhone revenue surpassed Wall Street’s expectations by a stunning $5 billion. Apple stock is down just over 1% in its premarket trading as of 6:41 a.m. ET. This came after Apple Chief Financial Officer Luca Maestri said the company’s revenue growth in the September quarter would not be as strong as June’s. This is likely due to the foreign exchange rates, the semiconductor shortage, and tougher comparisons with the previous years.
“The shortage primarily affected Mac and iPad,” Apple CEO Tim Cook told CNBC’s, Josh Lipton. “We had predicted the shortages to total $3 to $4 billion. But we were actually able to mitigate some of that, and we came in at the lower than the low-end part of that range.”
Certainly, it is unconventional to see Apple stock decline after reporting a whopping quarter. Chief Executive Tim Cook said that 5G penetration is still extremely low. For this reason, he is very confident about the future of the iPhone. Additionally, the significant growth in services is also very encouraging. If anything, it shows that Apple’s long-running investment in its services strategy is succeeding. With that in mind, would the dip provide a buying opportunity?
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Federal Open Market Committee’s July Monetary Policy Decision
The Federal Reserve kicks off its two-day meeting on monetary policy Tuesday. Today, the Federal Open Market Committee (FOMC) will release a statement followed by remarks from Chairman Jerome Powell during a press conference. From here, investors will have better clues on the central bank’s timeline for asset tapering and interest rates hikes.
“We’re not expecting fireworks at this Fed meeting,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “But we are expecting the committee to go further down the road in discussing the when and how to start removing the emergency level monetary accommodation it has been providing markets.”
Investors will be paying close attention to what the FOMC has to say. On one hand, inflation has risen significantly more than what the monetary authorities had expected. On the other hand, concerns over the Delta variant have brought additional reservations over the economic outlook. Admittedly, most Fed officials view the recent rise in inflation as largely transitory. But it will be interesting to see if Powell gives any further comments on inflation risk.
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Chinese Stocks Tumble As Beijing Crackdown Continues
Chinese tech stocks in Hong Kong appear to have taken a break from sliding on Wednesday. According to analysts at Bespoke Investment Group, “There hasn’t been a single two-day decline since the Financial Crisis that has exceeded the magnitude of the last two days.” The bearish sentiment intensified this week triggered by regulatory fears over sectors such as technology and private education.
While Chinese education stocks and tech stocks in Hong Kong have rebounded slightly, caution remained as the impact of a Chinese crackdown continued to be felt. That said, New Oriental Education (NYSE: EDU) has surged more than 10% today in the Hong Kong stock market. The crackdown on lucrative sectors such as tech is also raising questions on how much further it will extend to curb big companies. For instance, Tencent (OTCMKTS: TCEHY) remains under pressure despite a few days of the selloff.
With little visibility on the Chinese government’s next move, many institutional investors may be steering clear of the trade for the rest of 2021. This is despite the Hong Kong and Shanghai index getting oversold on a relative basis, which could indicate a near-term bounce. However, whether that could happen anytime soon is anybody’s guess. Having said that, sentiment is likely going to remain bearish for a while. The question is, will it dissuade bargain hunters?
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Big Tech Earnings Continue
Wall Street is gearing up for another busy earnings day in the second quarter. Big Tech continues to dominate the scene, while investors are waiting for the policy update from the Fed. Major tech companies including Facebook (NASDAQ: FB), Qualcomm (NASDAQ: QCOM), and PayPal (NASDAQ: PYPL)are set to report after the closing bell today. These will come on the heels of an already strong second-quarter earnings season.
Major tech names such as Alphabet, Apple, and Microsoft (NASDAQ: MSFT) have posted results that handily topped estimates. This had added optimism around the forthcoming reports. This morning, we have some major companies reporting. They include Shopify (NYSE: SHOP), Pfizer (NYSE: PFE), and Spotify (NYSE: SPOT), just to name a few. There is no doubt that growth concerns remain with the Delta variant continuing to be on the minds of many. It seems that a strong earnings season would be able to put some of those concerns to rest.
