Along with more sober assessments of the likelihood of U.S. recession any time soon, Wall Street’s recovery looks set to continue later today – with futures for all major indexes all up more than 1% ahead of the bell.
To the extent that global growth jitters were part of the market hiccup of the past week, Chinese trade numbers for July also helped settle things down a bit. Although Chinese export growth missed forecasts, imports were ahead of expectations.
Attention then switches back to the fundamentals of the earnings season and supercharged Federal Reserve rate cut bets.
If worries about pricey tech stocks and a reappraisal of the artificial intelligence theme was another reason for last week’s upheaval, then Super Micro Computer’s miss overnight may keep nerves jangling in that sector.
Super Micro’s gross margins came in below estimates as high costs tied to the production of servers with the latest AI chips weighed on profits and sent its shares down 14%.
The read-across to other major chipmakers was limited so far – with AI torchbearer Nvidia still up 1.5% in pre-market trading on Wednesday.
What’s more, overall second-quarter earnings remain impressive. Aggregate annual S&P500 profit growth is tracking 13.7% – more than two points higher than pre-season estimates, according to LSEG data.
And there are some big winners despite the recent tech wobble. Uber’s results beat Wall Street estimates on Tuesday on the back of steady demand for its ride-sharing and food-delivery services, lifting its shares 5%.
In interest rate markets, the broader stock market stabilisation has tempered the Fed view somewhat.
But a hefty 41 basis points of cuts next month is still priced by futures market and more than 100bps is still in the mix by the yearend.
Tuesday’s $58 billion three-year Treasury auction went off without a hitch and some $42 billion of benchmark 10-year goes under the hammer later today.
With a yield of 3.93%, Treasury is getting 10-year funding more than 20bp cheaper than if the auction was held this time last week.
As to recession worries more generally, there’s little on Wednesday’s diary to shift the dial on that – with tomorrow’s jobless claims data likely to be a focus given the sudden bout of angst about labor market weakness.
For most investors, a ‘soft landing’ remains the best guess and stepped-up Fed rate cuts will only underscore that.
Franklin Templeton Institute’s Stephen Dover points out that the average one year stock market return after the first Fed rate cut is almost 5% even when a recession occurs – but it’s 16.6% when the cuts come without a recession materialising.