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Futures in the United States are trading flat


20 October 2021

Futures in the United States are trading flat, while those in Europe are trading higher, as strong corporate earnings continue to boost investors’ risk appetite despite rising consumer prices. The Dow Jones Industrial Average gained nearly 200 points as a result of investor optimism. Investors should note that the US dollar fell on Tuesday as stock traders feared that foreign central banks would begin tightening monetary policy before the Federal Reserve. Today, investors will be looking at the inflation data from the United Kingdom to understand and predict how inflation may shape up back home as well.

In yesterday’s session, the Dow Jones Industrial Average jumped 0.56%, and the S&P 500 index soared 0.74%. The Nasdaq, the tech-savvy index, rose 0.71%, and the Russell 2000, the small-cap index, surged 0.36%.

Stock Market

Corporate earnings are proving to be a strong support for the major stock market indices at a time when stock traders have been bombarded with bad news such as the risk of an impending power crisis, rising coronavirus cases, and surging consumer prices, which are having a significant impact on the global economic recovery. Signs of exhaustion can already be seen in the two biggest economies of the world, both facing a reduction in industrial activity. However, another week of superb earnings could just be what the markets need to rally the bulls and drag stock market indices back to their all-time highs.

Moving onwards, investors are particularly looking at earnings guidance to see how surging input costs and rising costs of power may affect profit margins of corporations. The price of the much needed crude oil is continuing to rise after Russia hinted that it may not cut Europe some slack and provide the region with more natural gas unless it approves the Nord Stream 2 pipeline. The fourth quarter is crucial for companies as they will likely tackle labor, currency, inflation, and supply risks. Inability to effectively handle these issues may dent economic growth.

Fed officials are trying their best to calm investors. Christopher Waller, governor of the Federal Reserve, stated that the Fed will likely begin winding down its quantitative easing measures in November but reaffirmed that hikes in interest rates will likely not be carried out in the short term. This makes sense because the Fed still does not have much data about what inflation may look like in coming months, and hence the central bank will be extremely cautious in its policies. Investors should expect some corrections in stock markets based on what the Fed says regarding inflation over the next few weeks.

Earnings Season

Johnson & Johnson outperformed expectations and sold Covid-19 vaccines worth $502 million in its last quarter. In addition to this, the company achieved adjusted earnings per share (EPS) of $2.60 instead of the $2.35 expected. Similarly, revenue for the company surged to $23.34 billion versus the projected $23.72 billion. For the financial year 2021, the company now expects its revenue to be between $94.1 billion and $94.6 billion and EPS to be between $9.77 and $9.82. Both estimates are above what Johnson & Johnson had initially anticipated.

Similarly, the streaming giant, Netflix, also surprised investors by reporting 4.4 million new subscribers during the third quarter, considerably above the 3.84 million new subscribers expected.

The significant growth in subscribers was because of an array of new television shows which had been delayed because of the coronavirus pandemic. Moreover, the company’s EPS was $3.19 versus the expected $2.56 and its revenue was $7.48 billion as expected. Netflix forecasts 8.5 million new subscribers in 2021.

Cryptocurrencies

The ProShares Bitcoin Strategy ETF, the first Bitcoin-linked ETF in the US, made a historic debut yesterday, becoming the second most traded debut fund of all time. The launch of the ETF helped Bitcoin, the king of cryptocurrencies, fly past the $63,000 mark. The launch of BITO, the ticker of the Bitcoin ETF, came only seconds after the BlackRock carbon fund and jumped 4.9%. Nearly 24 million shares of the fund were traded. For years, cryptocurrency supporters had been eagerly awaiting the launch of a Bitcoin-linked ETF, and had been debating its utility with regulators. The ETF is expected to open up digital coins to large investors, hastening the adoption of cryptocurrencies.

Oil

Going forward, investors should expect a gap between supply and demand of crude oil which is having a toll on crude oil stockpiles and driving prices up. Brent, the benchmark of crude oil, has jumped nearly 19% since September and WTI has surged about 22%. At the current pace, supply of oil is likely to catch up with demand only by the fourth quarter of 2021. With the winter season rapidly approaching and demand for heat rising, prices of fuel commodities such as oil, natural gas, and coal are likely to remain elevated. Today, investors should look at crude oil stockpiles in the United States to determine how much of a supply deficit exists in the market.

Gold

Gold prices rose slightly on Tuesday as the 10-year Treasury bond yield remained above 1.6%. The precious metal’s appeal as a safe haven commodity has suffered as the Fed has repeatedly hinted that it will likely begin tapering its bond purchases as early as November. Moving forward, gains for the yellow metal are unlikely because strong corporate earnings have fueled investors’ risk appetite, driving them away from the precious metal.

Asian Pacific Markets

Yesterday, the IMF cut its forecast for economic growth in Asia from 7.6% to 6.5% in 2021. As of 11.23 p.m. EST, the Nikkei hopped 0.13% and the Shanghai index dropped 0.25%. The Hang Seng index, in Hong Kong, rose 1.18%. The ASX 200 index climbed 0.77% and the Seoul Kospi dipped 0.10%.

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