Market Snapshot: U.S. stock futures near highs of the year as earnings season eyed

What’s driving markets

The S&P 500 is in line to begin Monday near the top of the 3,800 to 4,200 range within which it has vacillated for about five months.

Some big banks kicked off the U.S. first quarter earnings season on Friday, and the positive response to these reports signals easing anxiety about the financial sector and broader confidence over company profitability — all while concerns about Federal Reserve rate rises seem to dim.

“Cautious optimism is the Monday motivation mantra, as stronger U.S. corporate news…mask ongoing worries about the knock-on effect of higher interest rates,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Charles Schwab
SCHW,
-1.40%
is likely the reporting highlight for Monday, but things really get going again the next day when Bank of America
BAC,
+3.36%,
Goldman Sachs
GS,
+1.44%,
Johnson & Johnson
JNJ,
-0.16%,
and Netflix
NFLX,
-2.18%
present their numbers.

The market’s more relaxed tone of late can be seen in various anxiety barometers, noted Henry Allen, strategist at Deutsche Bank.

“[M]arkets are continuing to shrug off the financial turmoil that brought such volatile conditions only a month ago. In fact by the end of last week, the VIX index of volatility had closed at just 17.07pts, which is its lowest level since 4th January 2022, on the same day that the S&P 500 hit its record intraday high,” Allen wrote in a note to clients.

“Other measures are painting a similar picture as well, with the MOVE index of Treasury volatility beneath its pre-SVB levels again, whilst Bloomberg’s index of US financial conditions has now erased more than 80% of the tightening seen last month,” Allen added.

However, Jonathan Krinsky, technical strategist at BTIG, observed that underlying market trends suggest bulls should be wary.

“Over the last couple of weeks, the major indices have gotten essentially back to their early February levels. Yet below the surface, breadth has weakened. Consider that with the Russell 3k back to early February levels, the percentage of components above their 200-day moving average is now just 45% compared to 70%,” said Krinsky in a report to clients.

“The weak parts of the market remain weak, while the strong parts now appear vulnerable. This is typical of bear markets, and why things happen ‘slowly, then all at once’,” Krinsky added.

U.S. economic updates set for release on Monday include the Empire State manufacturing index for April, due at 8:30 a.m. Eastern, and the April homebuilder confidence index at 10 a.m. Richmond Fed President Tom Barkin is due to make comments at 12:45 p.m.