S&P 500 futures slip as traders brace for the start of earnings season

U.S. equities futures dipped early Monday morning as Wall Street looked ahead to big company earnings reports.

Futures tied to the Dow Jones Industrial Average slipped by 148 points, or 0.47%. S&P 500 futures fell 0.58%, and Nasdaq 100 futures lost 0.75%.

Twitter shares fell more than 5% in the premarket after Elon Musk terminated a deal worth $44 billion to buy the social media company. The billionaire took issue with the number of bots and fake accounts on the platform and said Twitter wasn’t being truthful about how authentic activity on the platform was. However, the company said it gave Musk the information he needed to assess the claims.

Monday’s moves lower come on the back of worsening Covid trends in China, with Shanghai detecting its first case of the BA.5 subvariant and Macau closing its casinos for a week.

“COVID headwinds aren’t just a Chinese phenomenon – cases are climbing globally, although the risk of lockdowns in the US and EU remains extremely low,” wrote Adam Crisafulli of Vital Knowledge.

Wall Street is coming off a mixed session in which the Dow and S&P 500 fell slightly, while the Nasdaq Composite rose for a fifth straight day. All of the major averages secured a winning week after a stronger-than-expected jobs report Friday showed that the economic downturn worrying investors has not yet arrived and added to positive sentiment.

Still, the 2-year Treasury yield jumped its 10-year counterpart, an inversion many see as a recession indicator. The 2-year rate on Monday traded at 3.08%, roughly 2 basis points above the 10-year.

“While the markets ended in solid green for the week, investors should brace for continued volatility in July, with ongoing uncertainties looming with respect to inflation, Fed policy, recession concerns, the enduring Russia-Ukraine war, all as we also move into corporate earnings season,” said Greg Bassuk, chief executive officer at AXS Investments.

The jobs report, while good for the economy, could embolden the Federal Reserve to continue its aggressive rate hikes in the coming months to fight persistently high inflation. It will be tested this week with a slew of earnings from major banks and consumer inflation data this week on deck.

“With recessionary fears weighing on the markets, investors are hyper-focused on corporate earnings for greater clues about the health of corporate America and the broader U.S. economy,” Bassuk said.

“A sharper lens will be needed to dissect these earnings reports, as a strong second quarter might be accompanied by very conservative outlooks,” he added. “As commodity and other producer costs remain high, companies will be factoring in the extent to which those heightened prices can be passed on to consumers and, likewise, how to keep earnings vigorous amid economic, geopolitical and other key headwinds.

PepsiCo and Delta Air Lines are scheduled to report earnings Tuesday and Wednesday. JPMorgan Chase, Morgan Stanley, Wells Fargo and Citigroup are set to report at the end of the week.

Investors are also looking ahead to key inflation data this week. The June consumer price index will be released Wednesday and is expected to show headline inflation, including food and energy, rising above May’s 8.6% level.