S&P 500 futures narrow early Tuesday loses as traders eye bank earnings

What’s driving markets

U.S. investors returned from the extended weekend — following the Martin Luther King, Jr. holiday — in a cautious mood, with equity index futures starting softer.

After the Friday launch of earnings season with several big banks, including JPMorgan Chase & Co., Tuesday offered more results and more grist on where the economy is going next.

Companies reporting earnings Tuesday include Goldman Sachs
GS,
-0.53%,
Morgan Stanley
MS,
-0.89%
and PNC Financial Services
PNC,
-1.37%
before the opening bell rings on Wall Street, followed after the close by Interactive Brokers
IBKR,
+0.59%
and Pinnacle Financial Partners
PNFP,
-0.33%.

Goldman Sachs shares are higher ahead of the bell Tuesday while Morgan Stanley and PNC Financial Services shares are lower.

“We go into Q4 earnings season with subdued expectations for corporate profits but relatively high valuations, balanced on a fulcrum of anticipated Fed rate cuts and lower long term interest rates,” said Nicholas Colas, co-founder of DataTrek Research, in a recent note.

” A wide range of expected results by sector should keep overall market volatility low as we see companies report results. While this is not the usual setup for a big market rally over the next 4-6 weeks, it should be enough to keep stocks grinding higher,” Colas added.

In another bit of data Tuesday morning, the New York Fed’s factory index fell sharply to negative 43.7 this month from negative 14.5 in December. That’s the lowest level since May 2020.

Investors also have monetary policy debates and geopolitical ructions to consider.

The backdrop is rising benchmark borrowing costs, which are
BX:TMUBMUSD10Y
climbing back towards 4%.

U.S. Treasurys were playing catch-up to Monday’s jump in German bund yields
BX:TMBMKDE-10Y
after European Central Bank governing council member Robert Holzmann said in an interview at Davos that lingering inflation may stop the ECB from cutting interest rates this year.

Though Holzmann is a renowned monetary hawk, his push-back against the market’s hopes for swift interest rate cuts in 2024 dovetails with recent attempts by Federal Reserve officials to damp expectations of how quickly the U.S. central bank also may ease policy this year.

“I sense that the first quarter of this year will be marked by the realization that it’s too early for the central banks to cut the interest rates unless something really bad – like another bank crisis, or a real estate crisis, or another debt crisis hits the fan,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Fed Governor Christopher Waller will speak on the economic outlook and monetary policy at 11 a.m.

Meanwhile, heightened tension in the Middle East is raising fears that the disruption of shipping through the Red Sea may add to inflationary pressures.

Stephen Innes, managing partner at SPI Asset Management, noted that despite recent airstrikes against them, Yemen’s Houthi said they will continue to assault ships in and around the Red Sea. “It’s hardly surprising risk is a bit unstable this morning,” he added,

Companies in focus

• Morgan Stanley
  MS,
  -0.89%
  shares are 2% lower in the premarket Tuesday following a beat on revenue in its fourth quarter earnings. Revenue for the bank and broker grew by 1.2% to reach $12.9 billion, beating the FactSet forecast of of $11.93 billion.

• Goldman Sachs Group Inc.
  GS,
  -0.53%
  shares are up 0.7% following a fourth-quarter revenue and profit beat from the investment bank. Revenue climbed to $11.32 billion, surpassing the $10.8 billon estimate. The earnings capped “year of execution” for the bank, according to CEO David Solomon.