Stock futures opened slightly on Wednesday night as investors awaited more earnings and data on the labor market recovery in the wake of the higher volatility.
Contracts on the NYSE traded a tick above the flatline line. The blue-chip index had closed the day in the red, pulling back from Tuesday's high-level record closing high. The Dow closed lower, while the Nasdaq eked out an higher close.
Some of the closely watched companies that posted earnings results after market close on Wednesday disappointed relative to Wall Street's consensus estimates, punctuating what has otherwise been an exceptionally strong second-quarter earnings season. Ride-hailing giant Lyft unexpectedly reported an adjusted EBITDA loss for the second quarter, a day after wider rival Uber posted an adjusted net margin during the same period. Etsy shares dropped as the company delivered a basic sales forecast that came short of estimates, with many traders fearing a sharp slowdown in e-commerce growth during the second half of this year.
Aside from these blips, however, most major corporations have posted second quarter results that exceeded estimates. As of last Friday, 59% of S&P 500 companies had posted results, and 88% of these had beaten Wall Street's earnings per share estimates, according to FactSet's latest data. The expected earnings growth rate for S&P 500 companies is tracking toward 85.1%, which would be the biggest jump since the fourth quarter of 2009.
The strong power behind the markets is the near-term earnings. Now you are start to see cracks on the edge, for maybe overdrafts. And where it's showing up is not in the market as a whole, but in the sectors and the Groups of Stocks and that leadership, and there's a bit more rotation going on there.
Over the past month, utilities and healthcare have outperformed while concerns over the spread of Delta variant reurged. For the year to date, however, the major sections of the S&P 500, including energy and financials, have remained the major outperformers, consistent with investors' convictions that this year would be one of recovery for the broader economy relative to last year's lows.
Interest rates again fell on Wednesday, with the benchmark 10 year yield exceeding below 1.13% for six months of low inflation. The move lower coincided with more worrying signs on the pace of the economic recovery, with private payrolls raising to just 330,000 in July, or less than half the consensus estimate based on ADP's latest monthly report on Wednesday. Still, however, recent data have been more positive, with the Institute for Supply Management's July services index jumping to a record high even though company survey respondents cited ongoing supply chain disruptions and shortages.
We've got some difficulty with logistical challenges. We have some inflation that's causing some indigestion at the moment, Michael Vogelzang, Captrust chief investment officer, told Yahoo Finance on Wednesday. But specifically, the Delta variant of COVID -19 is actually potentially positive for the stock markets mostly because yes it will cause a bit of a slower economy but Frankly the economy is booming and it won't be the end of the world to slow it down a bit. But it also might give the central banks around the world a little more cover to continue to provide some more liquidity than what I think the market's been expecting.