Dow futures jump more than 200 points to start week as Goldman earnings top expectations

U.S. stock index futures rose sharply Monday as Goldman Sachs reported an earnings beat to start a busy week of quarterly reports, and as investors bet that the Federal Reserve will be less aggressive against inflation than feared.

Futures contracts tied to the Dow Jones Industrial Average added 275 points or 0.88%. S&P 500 futures gained 0.80%, while Nasdaq 100 futures advanced 0.94%.

Wall Street anticipates a slew of major earnings this week, including more big bank reports following mixed results last week from JPMorgan Chase and Morgan Stanley.

On Monday, Goldman Sachs surpassed earnings expectations on the top and bottom lines, reporting that the firm’s fixed income traders generated about $700 million more revenue than expected. Shares popped 3% in the premarket.

Bank of America reported quarterly revenue that beat analyst expectations. Shares were up 2%in the premarket. IBM will post results after the closing bell.

“We anticipate volatility to remain elevated as the market toggles between pricing recession risk and soft landing probabilities with each piece of data,” Citi’s Scott Chronert said in a recent note.

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Despite the growing recession fears, S&P 500 companies are expected to post a 4.2% increase in second-quarter profit, according to consensus analyst estimates gathered by FactSet. S&P 500 members are also expected to post a 10.2% increase in revenue for the period, according to FactSet.

Profit expectations for the full year are still high with S&P 500 companies estimated to post a 9.9% earnings increase for 2022, estimates collected by FactSet show.

Other major companies set to report earnings this week include Johnson & Johnson, Netflix, Lockheed Martin, Tesla, United Airlines, Union Pacific, Verizon, and a host of other firms.

Meanwhile, futures Monday also got a boost after Boeing shares gained more than 3% on news that Delta Air Lines was buying 100 737 Max 10 planes.

Investors are wagering that interest rate hikes from the Federal Reserve will be less aggressive than feared at its meeting later this month. A Wall Street Journal report Sunday said the central bank is on track to lift interest rates by 75 basis points, instead of the full percentage point increase forecasted by some market participants.

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Goldman Sachs chief economist Jan Hatzius also said in an overnight note that he expected the Fed to raise rates by 0.75 percentage points.

The major averages are coming off a losing week, despite a Friday relief rally that saw the Dow jump more than 650 points. The 30-stock benchmark shed 0.16% on the week. The S&P 500 and Nasdaq Composite fell 0.93% and 1.57%, respectively.

It was the second negative week in the last three for all the major averages.

A batch of economic data drove last week’s wild market action. Inflation jumped 9.1% in June, a hotter-than-expected reading and the largest increase since 1981. That, in turn, led traders to bet that the Fed could raise rates by a full percentage point at its meeting at the end of July.

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By the end of the week, however, some of those fears retreated on the back of a strong retail sales number as well as comments from some Fed officials.

Recession fears have been front and center in recent weeks as market participants worry that aggressive action from the Fed — in an effort to tame decades-high inflation — will ultimately tip the economy into a recession.

“Markets are likely to remain volatile in the coming months and trade based on hopes and fears about economic growth and inflation,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a recent note to clients.

“A more durable improvement in market sentiment is unlikely until there is a consistent decline both in headline and in core inflation readings to reassure investors that the threat of entrenched price rises is passing,” he added.

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