Dow Futures Gain as Solid Growth, Tame Inflation, Surprising Profits Drive Bulls
Frankfurt (April 29) Global stocks traded higher Monday as investors extended bets that surging economic growth, stronger-than-expected corporate earnings and a potentially dovish Federal Reserve will continue to push U.S. stocks to fresh record highs.
The U.S. economy's faster-than-expected growth rate of 3.2% over the first quarter, coupled by a series of surprisingly solid profit outlooks from some of the biggest listed companies on Wall Street, would normally trigger moves by investors to hedge against faster inflation.
However, with the Fed's preferred measure of consumer price increases, the PCE deflator, likely to show a modest deceleration last month when it hits at 8:30 eastern time today, markets are instead betting that the Fed's Wednesday rate decision could include langue that will cement its dovish tilt. If that comes to fruition, and earnings from tech giants such as Google parent Alphabet (GOOGL - Get Report) and Apple Inc. (AAPL - Get Report) surprise to the upside, the S&P 500 could easily extend its recent run of record highs and drive towards the 3,000 mark in the weeks ahead.
That potential kept stocks in Asia and Europe stronger in the overnight session, as the U.S. dollar retreated from near two-year highs and oil prices extended declines from Friday's sharp sell-off, with the MSCI ex-Japan index rising 0.5% as corporate profits in China expanded for the first time in five months.
U.S. equity future are pointing to modest gains on Wall Street ahead of the PCE data at 8:30 am, as well as Google's earnings after the bell, with contracts tied to the Dow Jones Industrial Averaging indicating a 12 point advance and those linked to the S&P 500, which recorded two record closing highs last week, expected to bump 0.42 points higher to start the trading week.
Apple reports its second quarter earnings on Tuesday, with General Electric (GE - Get Report) , General Motors (GM - Get Report) , McDonald's Pfizer (PFE - Get Report) and Merck (MRK - Get Report) highlighting the biggest day of a week that includes 164 updates -- including five Dow components -- highlight by bluechips such as CVS (CVS - Get Report) , Eli Lilly (EL - Get Report) , Qualcomm (QCOM - Get Report) , Kraft Heinz (KHC - Get Report) , CBS Corp (CBS - Get Report) and Dow (DOW on Wednesday and Thursday.
In fact, with around half of the S&P 500 reporting so far this season, around 77% have topped earnings estimates, according to FactSet data, putting collective earnings on track to shrink 2.3% contraction from the same period last year, a figure that is well ahead of the 3.9% contraction estimated just a few weeks ago.
European stocks were stronger at the start of trading Monday, although Spain's IBEX benchmark slipped into the red following a weekend election that saw Prime Minster Pedro Sanchez hold onto power in the region's fourth-largest economy, even as he failed to win enough seats to command an outright majority.
The Stoxx 600 index gained 0.25% to kick off the week, extending gains from the 18-months highs it touched on Friday, as benchmarks around the region pulled back amid rising political uncertainty.
Markets in Italy were firmer, as well, as bank stocks gained following a move by Standard & Poor's on Friday to confirm its triple-B rating on the heavily-indebted economy, a decision which protects the standing of Italian government bonds in European Central Bank lending operations.
Global oil prices extended declines in overnight trading, following a sharp reversal of fortune Friday following comments from President Donald Trump that he had "called OPEC" to ask them to reduce prices.
"Gasoline prices are coming down", Trump told reporters over the weekend in Washington. "I called up OPEC, I said you've got to bring them down. You've got to bring them down."
Oil have gained more than 40% since hitting a multi-year low on Christmas Eve, with prices supported by OPEC's decision to extend production cuts, which take 1.2 million barrels from the market each day, into the second half of this year as well as sanctions on the sale of Iranian and Venezuelan crude by the United States.
Brent crude contracts for June delivery, the global benchmark for oil prices, were marked 48 cents lower from their Friday close in New York and changing hands at $71.67 per barrel while WTI contracts for the same month were seen 41 cents lower at $62.89 per barrel.
TheStreet
