Morning Bid: Megacaps report, Harris in frame, China wobbles
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[July 23, 2024] A
look at the day ahead in U.S. and global markets from Mike Dolan
Monday's Wall Street bounce saw some relief precede the first two
earnings reports from the "Magnificent 7" megacap stocks, while U.S.
Vice President Kamala Harris looked set to replace Joe Biden as Democrat
candidate for November's White House race.
A volatile couple of weeks for politics and stock markets sees attention
switch back to quarterly earnings on Tuesday, with Google-parent
Alphabet and Tesla updating after the bell today.
Last week's sudden rotation out of Big Tech into small caps raised
questions about just how high the earnings bar now is for pricey market
behemoths, with stocks such as Netflix stumbling despite beating
forecasts and chipmakers sideswiped by geopolitics.
A standback look at the earnings season so far offers more solace.
Some 81% of those that have reported to date have beaten estimates, with
overall annual profit growth for S&P500 firms still tracking a punchy
11% - slightly ahead of pre-season assumptions. Slower annual revenue
growth at 4.5% is also slightly ahead.
And while this pace is expected to dip in Q3, standing forecasts are for
a re-acceleration into 2025.
With the S&P500 rebounding more than 1% on Monday in its best day in six
weeks, the Information Technology index climbed 2% - topping sectoral
gainers and snapping a four-day losing streak.
The VIX volatility gauge slipped back from three-month highs.
In a twist ahead of today's updates, Israeli cybersecurity startup Wiz
has ended talks with Alphabet on a reported $23 billion deal, which
would have been the U.S. tech giant's largest-ever acquisition,
according to a Wiz memo seen by Reuters.
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But the election race remains the top talking point.
Less than 36 hours after Biden stepped aside and endorsed VP Harris, she
appeared to have secured the Democratic nomination on Monday night by
winning the pledged support of a majority of the party's delegates who
will determine the outcome at next month's convention.
While another round of speculation about Harris' pick of running mate
now ensues, markets are already tentatively re-calibrating election
bets.
Although former President Donald Trump is still seen as clear favorite
to return to the White House, online betting site PredictIt shows the
probability of his win has slipped to 60%.
The solidifying of a clear two horse race after weeks of uncertainty
about the candidates has seen Harris' ascribed probability jump 17
points from last week to some 44% on Tuesday as her campaign now begins
in earnest.
The somewhat cagey election positioning to date has run into sand as a
result, with many of the so-called Trump trades being pared back
slightly.
With another heavy week of Treasury debt auctions kicking off with a $69
billion two-year note sale on Tuesday, Treasury yields sensitive to the
fiscal implications of the election remained under wraps. The 2-to-30
year yield curve, which had briefly turned positive last week, remains
inverted.
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![](../images/072324PIX/busine71.jpg)
U.S. Vice President Kamala Harris, delivers remarks to the women and
men's National Collegiate Athletic Association (NCAA) Champion teams
in her first public appearance since President Joe Biden dropped out
of the 2024 race, on the South Lawn of the White House, Washington,
U.S., July 22, 2024. REUTERS/Nathan Howard
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Bitcoin also slipped back.
The dollar was mixed too, falling back against Japan's yen on
Tuesday as pressure built on the Bank of Japan to resume monetary
tightening there.
Senior Japanese ruling party official Toshimitsu Motegi said the BOJ
should more clearly indicate its resolve to normalize monetary
policy, including through steady interest rate hikes. The BOJ next
sets rates on July 31.
Increasingly correlated in Asia, yen strength came in tandem with a
small bounce in China's yuan too, despite Monday's surprise interest
rate cut from the People's Bank of China.
Trump's draconian tariff pledges may play a part there too.
But Chinese stocks recorded their biggest single-day drop in six
months, demonstrating the fragility of investor sentiment despite
ongoing stimulus efforts.
China's blue-chip CSI300 index closed down 2.1%, its largest one-day
decline since mid-January and ending a seven-session winning run.
European stocks were mixed on Tuesday, with the euro retreating
after European Central Bank Vice President Luis de Guindos said new
data and macroeconomic projections will help the ECB better reassess
its monetary policy stance in September - when markets now see its
next rate cut.
Back on Wall Street, stock futures were off slightly ahead of the
big earnings reports and with a thin economic diary.
Key developments that should provide more direction to U.S. markets
later on Tuesday:
* U.S. June existing home sales, Richmond Federal Reserve's July
business surveys; Euro zone July consumer confidence
* US corporate earnings: Alphabet, Tesla, Comcast, Texas
Instruments, Lockheed Martin, UPS, GE, GM, Invesco, Visa, Capital
One, Moody's, MSCI, Coca Cola, Kimberly-Clark, Chubb, HCA
Healthcare, Freeport McMoRan, AO Smith, Pentair, Philip Morris,
Avery Dennison, Danaher, PulteGroup, Quest, Seagate Technology,
Sherwin-Williams Enphase Energy, CoStar, Genuine Parts, Packaging
Corp of America
* G20 Finance Ministers and Central Bank Governors meet in Rio de
Janeiro ahead of the G20 Brazil Summit
* European Central Bank Chief Economist Philip Lane speaks
* US Treasury sells $69 billion 2-year notes
(By Mike Dolan; Editing by Sharon Singleton mike.dolan@thomsonreuters.com)
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