S&P 500; US Indexes Fundamental Daily Forecast – Treading Water ahead of Earnings Season

U.S. stock index futures closed mixed on Monday with a rally in tech stocks contributing the most to the gains. Volume was light as some of the major players returned from an extended Fourth of July holiday. Traders attributed the lackluster trade to uncertainty ahead of the two-day testimony before Congress by Fed Chair Janet Yellen on Wednesday and Thursday and the start of earnings season later this week.

In the cash market, the benchmark S&P 500 Index settled at 2427.43, up 2.25 or +0.09%, the blue chip Dow Jones Industrial Average closed at 21408.52, down 5.82 or -0.03% and the technology-based NASDAQ Composite ended the day at 6177.61, up 24.53 or +0.40%.

Optimism over higher earnings helped drive investors back into technology stocks on Monday. The sector has taken a beating for about a month as investors, anticipating higher interest rates, shifted money out of technology stocks and into financial services stocks. According to Thompson Reuters, “technology is expected to have had among the strongest earnings growth for the second quarter.”

Forecast

Stock investors will take the next 2 to 3 days to digest Fed Chair Janet Yellen’s assessment of the economy, the future of interest rates and the unwinding of the central bank’s massive balance. Then the focus will shift to earnings.

One of the strongest sectors lately has been financial services and ironically, earnings reports from several banks will start the second quarter earnings season. Big U.S. banks including JPMorgan Chase, Wells Fargo and Citigroup will start the parade of earnings reports. According to reports, S&P 500 earnings are forecast up 7.9 percent in the second quarter compared with a year ago.

Bank stocks will continue to be supported by the results of last month’s Federal Reserve stress tests. The results were so strong that the central bank approved plans from the 34 largest U.S. banks to use extra capital for stock buybacks, dividends and other purposes. This made bank stocks very attractive, leading to the shift from technology stocks to financial services stocks.

In other news, Asian indexes bucked the trend to finish higher on Tuesday, however, traders said the volume was light. European indexes were also higher, supported by rising crude oil prices.

We could continue to see a choppy, two-sided trade this week as investors continue to make adjustments to their portfolios in reaction to rising global bond yields. Investors are likely to continue to move money out of stocks that benefitted the most from quantitative easing and into stocks that will benefit from a higher interest rate environment.