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Stock Futures Retreat As Tech Earnings Loom Amid Ratings Downgrade And Yield Spike

Caution prevails as Fitch's U.S. ratings downgrade and rising Treasury yields impact market sentiment.

 

NEW YORK, NEW YORK – AUGUST 02: People walk on the floor of the New York Stock Exchange (NYSE) on August 02, 2023 in New York City.  The Dow fell over 300 points in trading following news  Fitch downgraded the United States economy to AA+ from AAA late on Tuesday spooking investors and markets. (Photo by Spencer Platt/Getty Images) 

As Fitch’s U.S. ratings downgrade overhang persists and earnings new flow turns negative, stock futures are pulling back yet again on Thursday. Traders may find caution a virtue as a few profile tech names, including Apple, Inc. (NASDAQ:AAPL), are scheduled to report their quarterly results. Treasury yields continue to spike, which decreases the appeal of tech stocks. A duo of service sector readings could give some clarity on the economic outlook.

Stocks plunged on Wednesday as risk aversion set in motion by Fitch’s downgrade of U.S.’s sovereign rating sent traders scurrying for cover. A private payroll report that showed strong job gains in the private sector did not help matters any further, as the number triggered worries concerning more Fed rate hikes.

The major averages opened sharply lower and continued to languish below the unchanged line. Unwinding some of their recent gains, the indices closed notably lower.

The S&P 500 Index and the Nasdaq Composite pulled back to their lowest since mid-July. The sell-off was led by communication services, technology, consumer discretionary, industrial and material stocks.

 

The odds are increasing that stocks could finally take some type of a break, said Carson Group’s Ryan Detrick. The analyst sees a modest pullback of approximately 5% to be “perfectly normal,” given the S&P 500 closed higher for five consecutive months.

August, the analyst said, is a poor performer and trailed behind only September and December in the last 10 years.

Historically, when the S&P 500 Index was up more than 17.5% for the year ahead of August, the month has mostly seen negative returns, Detrick noted.

Meanwhile, Morgan Stanley’s Lisa Shalett said the Fed may not begin to cut rates any time soon, as the core inflation is still too hot for its liking.

“Consider rebalancing toward value-style equities or those with ‘growth at a reasonable price’ attributes,” she added.

In premarket trading on Thursday, the SPDR S&P 500 ETF Trust (NYSE:SPY) slipped 0.12% to $449.60 and the Invesco QQQ ETF (NASDAQ:QQQ) declined 0.23% to $373.53, according to Zenger News Pro data.

S&P Global’s final service and composite purchasing managers’ indices for July are due at 9:45 a.m. EDT. The services PMI is expected to decline from 54.2 in June to 52.4 in July and the composite PMI may have dipped from 53.2 to 52.

The Institute of Supply Management will release its non-manufacturing PMI for July at 10 a.m. EDT. The non-manufacturing index, based on ISM’s survey, is expected to come in at 53 for July, down from 53.9 in June.

The Commerce Department is due to release its factory goods orders report for June at 10 a.m. EDT. Factory goods order growth may have accelerated from 0.3% month-over-month in May to 2.2% in June.

The Treasury will auction four- and eight-week bills at 11:30 a.m. EDT.

 

Crude oil futures fell 0.15% to $79.37 in early European session on Thursday after Wednesday’s 2.31% plunge.

The benchmark 10-year Treasury note rose 0.058 percentage points to 4.136%.

The major Asian markets ended mostly lower, dragged by the sell-off seen on Wall Street overnight. The Chinese market bucked the downtrend with moderate gains after service sector activity data came in stronger than expected. The Indonesian market also chalked up moderate gains.

The European markets were in the red in late-morning trading ahead of the Bank of England’s monetary policy meeting. The central bank is widely expected to raise rates by 25 basis points to 5.25%.

 

Produced in association with Benzinga

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