Equities slipped in Japan and Australia in early trading, while futures signaled a decline in Hong Kong. US stock futures edged lower in Asia hours following a rotation in the American shares that drove the Nasdaq 100 to the brink of a correction. The S&P 500 closed little changed and small caps slipped.
Treasuries headed toward a third straight month of gains, the longest run since 2021. The US Treasury cut its estimate for federal borrowing for the quarter and projected its cash buffer to fall toward year-end. Australian bonds dropped in early trading.
“Data is limited today, and what we do see won’t move markets, so this is a day for position/position management and to review broad exposures ahead of US earnings, and then tomorrow’s Australian CPI, BOJ meeting, and German and European CPI,” Chris Weston, head of research at Pepperstone Group Ltd., wrote in a research note.
BloombergResults from Microsoft Corp., Meta Platforms Inc., Apple Inc. and Amazon.com Inc. will be crucial after an underwhelming start to the megacap reporting season. Federal Reserve officials are on the verge of lowering rates within months, a move Jerome Powell may signal Wednesday. Major central banks are also set to meet in Japan and the UK, with traders closely watching the Bank of Japan for signs of a hike and the Bank of England for a potential cut.
BOJ Governor Kazuo Ueda will have investors on high alert Wednesday when he lays out a detailed plan for quantitative tightening after years of massive easing. He may also double down by adding an interest-rate hike to boot.
The S&P 500 hovered near 5,465 on Monday. A gauge of the “Magnificent Seven” megacaps gained 1%. The Russell 2000 of smaller firms fell 1.1%. Tesla Inc. jumped on a bullish Morgan Stanley call. McDonald’s Corp. investors shrugged off a sales drop as executives pledged to launch new promotions. Energy producers joined a slide in oil.
BloombergUS policymakers, who’ve kept rates at a more than two-decade high for a full year, are widely expected to leave them there again on Wednesday. But investors see officials signaling a move in September as risks grow of imperiling a solid, but moderating job market.
July’s wild ride in stocks has underscored how betting on seven large tech companies is no longer a simple, slam-dunk trade. During most of the month, investors jumped into other corners of the market on speculation Fed cuts will further boost Corporate America. Still, the S&P 500 ended up suffering two straight weeks of losses, dragged down by its most-influential group – technology.
“It’s almost impossible to know if the worst of the recent market pullback is over, but we continue to believe the equity market backdrop is favorable due to resilient growth, falling inflation, likely Fed rate cuts, and AI spending,” said David Lefkowitz at UBS Global Wealth Management.
To Morgan Stanley’s Michael Wilson, a dimmer outlook for US corporate earnings is likely to hurt stocks that are tied to the economy, as investors worry about the impact of falling inflation on pricing power.
The strategist — who was among the biggest bearish voices on US stocks last year — said that a gauge that measures profit upgrades versus downgrades has turned weaker, as is typical for this time of the year. That’s being driven primarily by so-called cyclical sectors.
