Futures climb as chips, megacaps gain; corporate earnings on tap

[January 19, 2024]  (Reuters) - U.S. stock index futures edged higher on Friday, driven by gains in chip and megacap stocks, while investors reassessed expectations of a March rate cut and awaited earnings reports from corporate America.

Semiconductor stocks such as Advanced Micro Devices, Marvell Technology, Nvidia and Microchip Technology led gains in trading before the bell and were up between 1.5% and 2.3%.

Adding to the buoyancy, Super Micro Computer surged 12.4%, after the hardware firm lifted its second-quarter profit forecast.

Megacaps Microsoft, Meta Platforms, Alphabet and Apple also added between 0.5% and 1.1%.

The markets had a rocky start to the week following a mixed bag of earnings from top investment banks and disappointing comments on the possibility of an early start to rate cuts from a number of central bankers, both at home and abroad.

However, the Nasdaq is on course for weekly gains and the S&P 500 is nearing a record high. The indexes were boosted by a recovery in chip stocks, as investors cheered an artificial intelligence-focused (AI) bullish forecast from Taiwan Semiconductor Manufacturing (TSMC), the world's largest contract chipmaker.

The information technology sector hit a record high during the previous session, and the Philadelphia SE Semiconductor index is a whisker away from a record high.

"The optimism is that even with a slowing global economy and the consumer struggling because of high rates, businesses are looking for ways to increase productivity... this is where AI and those tech companies are just surging ahead," said Danni Hewson, head of financial analysis at AJ Bell.

On the economic data front, December existing home sales and the preliminary reading of the University of Michigan's Consumer Sentiment Index for January are awaited at 10 a.m. ET.

Also on tap are remarks from San Francisco Fed President Mary Daly and Fed Vice Chair for Supervision Michael Barr, for clues on the central bank's policy outlook before the blackout period begins, ahead of its policy meeting later in January.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 13, 2023. REUTERS/Brendan McDermid/File Photo

Through the week, money market participants have toned down expectations for a 25-basis-point rate cut in March to 54%, nearing levels seen just before the central bank's December policy meeting, according to the CME Group's FedWatch Tool.

At 5:46 a.m. ET, Dow e-minis were up 65 points, or 0.17%, S&P 500 e-minis were up 18.5 points, or 0.38%, and Nasdaq 100 e-minis were up 121.75 points, or 0.71%.

Quarterly results from State Street, Fifth Third Bancorp, Comerica and SLB will also be on investors' radars before the session starts.

Several U.S. banks reported a plunge in fourth-quarter profits on Thursday, hurt by a drop in interest income and charges tied to replenishing a deposit insurance fund.

"S&P 500 companies are reporting lackluster fourth-quarter results and forward guidance though it is still very early in the season," J.P.Morgan strategists said in a note.

iRobot rolled 37.0% after a report said the European Union's competition watchdog plans to block Amazon.com's $1.4-billion acquisition of the robot vacuum maker.

Spirit Airlines lost 1.6% after a nearly 62% drop in the last four sessions. Ratings agency S&P downgraded the carrier to "CCC+", citing weak operating performance and a higher refinancing risk.

(Reporting by Johann M Cherian in Bengaluru; Additional reporting by Siddarth S; Editing by Pooja Desai)

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