S&P 500 Futures Fall as Interest Rates Hit New Three-Year High, Investors Evaluate Massive Earnings Week


Equity futures fell Monday morning as 10-year government bond yields hit a new three-year high and kicked off a week of key first-quarter earnings reports.

Futures on the Dow Jones Industrial Average lost 41 points, or 0.1%. S&P 500 futures lose 0.2%. Nasdaq futures were down 0.3%.

The 10-year government bond yield reached its highest level since late 2018 on Monday, trading above 2.87% at one point. Yields stood at 1.71% in early March but rose as the Federal Reserve moved into a more aggressive tightening stance. That change has weighed on equities and raised concerns about an impending recession.

Shares of big tech companies, including Amazon, Meta Platforms, Apple and Microsoft, fell in early trading. Shares of Alphabet fell by 2.3%.

Fintech stocks led to declines in premarket trading. Coinbase, PayPal and Block, formerly known as Square, each lost more than 1%. Tech stocks tend to decline as yields rise because growth-oriented companies are more likely to offer investors higher returns in the distant future than in the short term.

Didi shares lost 18.7% premarket after the Chinese ride-hailing company reported a 12.7% drop in revenue. Other US-traded Chinese stocks also posted significant pre-market losses. The KraneShares CSI China Internet ETF fell 1.8%.

Meanwhile, Bank of America on Monday reported quarterly results showing a 13% year-over-year decline in earnings per share, although the results were slightly higher than expected. The stock gained 1.3% in the premarket.

Several Dow blue-chip names report earnings this week, including IBM, Procter and Gamble, Travelers, Dow Inc, Johnson and Johnson, American Express and Verizon.

Technology experts will also report quarterly results, with Netflix on Tuesday and Tesla on Wednesday. Snap reports Thursday. United Airlines, American Airlines and Alaska Air are also on the calendar, as are CSX and Union Pacific railroads.

Investors will want to pay close attention to forward guidance, especially for comments on how companies deal with rising costs. The March consumer price index reading published last week showed a year-on-year increase of 8.5%, the fastest annual increase since December 1981.

“It seems likely that underlying inflation will moderate to an acceptable pace without a significant slowdown in demand growth,” Gerard MacDonell of 22V Research said in a note Sunday.

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Earnings season is off to a good start with 81.5% of S&P 500 companies reporting earnings per share that are above expectations, according to FactSet. About 7.5% of the benchmark has reported results so far, and analysts believe first-quarter profits will rise 5.3% for the quarter when all S&P 500 companies finish reporting, according to FactSet’s analysis of actual results and future estimates.

Morgan Stanley analysts say the first quarter earnings report may turn out to be more disappointing than expected.

“The breadth of earnings revisions for the S&P 500 has resumed its downward trend in the past two weeks and is approaching negative territory again,” the company’s stock strategist Michael Wilson said in a note Monday. “The Morgan Stanley Business Conditions Index (a survey by our industry analysts) has fallen to its lowest level since April 2020, and margin expectations appear too optimistic for the ’22 balance sheet given the myriad cost pressures companies are facing.”

Despite some better-than-expected results so far, investors sold stocks last week on fears that higher rates and inflation could cloud earnings prospects. The S&P 500 fell 2.13% for the second negative week in a row. The Nasdaq Composite lost 2.63% and the Dow fell 0.8% over the period. US stocks did not trade Friday due to the holiday weekend.

Elsewhere, Twitter shares were up 2.7% in the premarket at about $46.09 a share. The move comes after Twitter announced Friday that the board has passed a limited-term shareholder rights plan, often referred to as a “poison pill.” The move comes after billionaire Elon Musk offered to buy the company for $43 billion.

—With coverage by CNBC’s Patti Domm.

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