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Earnings Are Driving Price Action, Here Is Why

Earnings Are Driving Price Action, Here Is Why

Stock Market Today

European and US stock futures are trading almost flat today after the mind boggling day investors witnessed in yesterday’s session following the release of the much awaited inflation data released by the Labor Department and the onset of the earnings season with JPMorgan and Goldman Sachs shattering expectations.

Inflation

Bears hijacked the stock markets yesterday following the release of inflation data which published figures that were higher than what economists expected. Contrary to the expected 5% surge, the consumer price index grew by 5.4% on a year on year basis. The advance in growth of inflation in June was the quickest in 13 years.

Having said that, investors should be relieved that the surge has been significantly caused by a rise in prices of used cars, after the notorious chip shortage curbed production of new cars, because of which inflation seems to be transitory.

Stock traders should dissect Jerome Powell’s briefing before the House Financial Services Committee today to get a sense of how the Fed will react to the surge in consumer price index.

Stock Market

Although inflation has risen faster than expected, investors should keep in mind that the three major indices are still gliding near all-time highs, and that the second half of 2021 is expected to remain bullish as the US economy recovers from the pandemic.

UBS, a Swiss multinational investment bank, hiked its projections for the S & P 500 in December 2021 from 4,400 to 4,500. The index is currently trading at nearly 4,369 points. The reasons behind such a bullish projection are the ever growing investment in companies, pent up consumer cash balances, and the ultra-loose monetary policy by the Fed.

The Dow Jones Industrial Average slumped 0.31%, and the S & P 500 index dropped 0.35%. The Nasdaq, the tech-savvy index, declined 0.38%, and the Russell 2000, the small-cap index, fell 1.88%.

Big Tech

Amid the meltdown on Wall Street yesterday, tech companies swam against the tide, posting gains. Visa, Microsoft, and Apple surged by 1.67%, 1.32%, and 0.79% respectively within the Dow.

JPMorgan and Goldman Sachs

The two financial behemoths were in the spotlight yesterday following the release of their earnings before the closing bell on Tuesday. JPMorgan’s profit nearly doubled in the second quarter due to the release of $3 billion in reserves set aside by the bank to compensate for expected losses from the coronavirus pandemic. These reserves countered the decline in demand for loans and decreased trading activity. Revenue touched $31.4 billion, beating the expected $30 billion and profit settled at $11.9 billion, surging from the $4.7 billion reached in the same time frame last year.

Similarly, Goldman Sachs outperformed expectations. The surge in IPOs aided the bank’s investment banking division in reaching its second highest revenue in three months ever. The bank’s revenue was $15.9 billion, exceeding expectations of $12.17 billion, and profit was $5.5 billion, up from $373 million in the same period last year.

What is important to note here is that Goldman has declared that it would boost its quarterly dividends by a whopping 60% starting in the second half of 2021. This should boost investor confidence and be interpreted as a sign of a thriving financial sector in the coming months.

Cryptocurrencies

Bitcoin, the king of digital currencies, also slumped yesterday following the frenzy in the financial markets within the US. It is currently worth nearly $32,406. However, it is safe to say that crypto enthusiasts are taking advantage of any opportunity to get a good deal as institutional investors continue to pour money into this space.

Capital Group, one of the world’s largest investment management firms, is the latest to enter the cryptocurrency market. The company has acquired a 12.2% stake in MicroStrategy, which is heavily invested in Bitcoin and has purchased Bitcoins worth $2.741 billion since the end of June. As a result of this transaction, Capital Group has gained indirect exposure to the digital assets, reassuring investors that the crypto sector has a bright future.

The U.S. Dollar and Gold

Following the release of the consumer price index yesterday, the dollar index rose by as much as 0.6%, the largest increase since August 2008. Investors should closely monitor press releases from Fed officials to determine how the policy rate will be adjusted in response to the latest inflation data, as a rise in interest rates would be followed by a rise in the value of the dollar.

On the other hand, Fed’s view that inflation is likely to be short-term boosted gold yesterday, which is now trading at $1,813 per ounce, up 0.17%.

Oil

Oil prices are rising as concerns about depleting stockpiles outweigh concerns about an increase in cases caused by the coronavirus Delta variant. There is also no update on the increase in output by OPEC+ countries, which raises concerns about the black gold’s future.

Brent crude oil settled at $76.23 per barrel and U.S. West Texas Intermediate settled at $74.91 per barrel as of 11:42 p.m. EST.

Asian Stock Markets

The Nikkei 225 index in Japan fell 0.21% in morning trade, and the Shanghai Composite Index declined 0.82%. As of 11:38 p.m. EST, the ASX 200 index rose 0.15%, and Seoul’s Kospi had dropped 0.24%. Hong Kong’s Hang Seng index decreased by 0.56%.