S&P 500 futures bounce after two-day sell-off as Apple, Amazon earnings loom

What’s driving markets

The S&P 500 has dropped 1.7% over the last two sessions as investors expressed disappointment over big tech earnings and monetary policy trajectory.

Both factors are very likely to continue driving sentiment for the rest of the week.

After earnings late Tuesday from Microsoft

MSFT

,
Alphabet

GOOG

and Advanced Micro Devices

AMD

could not match the AI-derived optimism that has pushed the market this week to a record high, it is the turn of three more of the techs sector’s big beasts to present their numbers, with Apple

AAPL

,
Meta

META

and Amazon.com

AMZN

announcing results after Thursday’s close.

“[M]ost investors have been waiting in ambush for the slightest misstep to take advantage of selling the overstretched tech rally,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Apple, Amazon and Meta’s results “better blow investors’ minds. Otherwise, the tech selloff is poised to gather momentum,” she warned.

Pricing of Apple options indicate traders see a move of about plus or minus 3% for the stock by the end of the week, according to MarketWatch calculations.

Other companies revealing results on Thursday, include Altria

MO

,
Peloton Interactive

PTON

,
Merck

MRK

and Honeywell International

HON

before the opening bell rings on Wall Street, followed after the close by Atlassian

TEAM

,
U.S. Steel

X

and Skechers

SKX

.

Traders will also be keeping a wary eye on the regional banking sector after shares in New York Community Bancorp

NYCB

plunged as the lender highlighted difficulties in commercial real estate.

A Japanese bank, Aozora

8304

,
issued a profit warning, as it cut the value of its U.S. office portfolio and nursed losses on U.S. and European bonds.

Meanwhile, investors continue to consider the timetable for when the Federal Reserve may begin lowering borrowing costs. Fed Chair Jay Powell said at his post-meeting press conference on Wednesday that a rate cut in March was “not the most likely case or the base case.”

Stocks expressed disappointment at this push back, but fixed income futures markets now see an even greater certainty of rates falling at the subsequent Fed meeting in May, and indeed traders also still see around 150 basis points of cuts occurring this year.

“It’s very much a case of train delayed, not cancelled, at this point,” said Steve Clayton, head of equity funds at Hargreaves Lansdown. “But investors are likely to be less forgiving if we see any data emerging suggesting that the economy still has scope to keep inflation bubbling away,” he added.

To that end, the market will be keen to see the nonfarm payrolls report on Friday, hoping for signs that wage growth is not picking up speed.

Before that, U.S. economic updates set for release on Thursday include the weekly initial jobless claims report, alongside fourth quarter 2023 productivity, due at 8:30 am. Eastern. The final reading of the S&P manufacturing PMI survey for January will be published at 9:45 a.m. The January ISM manufacturing report is due at 10 a.m., along with December construction spending.