S&P Futures Plunge as Surprise U.S. Credit Rating Downgrade Weighs on Sentiment

September S&P 500 futures (ESU23) are trending down -0.54% this morning as risk sentiment took a hit after rating agency Fitch downgraded the United States’ credit rating while market participants awaited new economic data on the labor market.

Fitch Ratings unexpectedly downgraded the United States’ sovereign rating to AA+ from AAA late Tuesday, citing potential fiscal deterioration over the next three years and concerns about repeated down-to-the-wire debt ceiling negotiations that could threaten the government’s ability to meet its financial obligations. At the same time, U.S. Treasury Secretary Janet Yellen criticized this decision, calling it “arbitrary and based on outdated data.”

In Tuesday’s trading session, the blue-chip Dow outperformed the other two indexes, buoyed by an over +8% surge in shares of Caterpillar (CAT) after the industrial bellwether reported solid Q2 results. Also, Arista Networks (ANET) surged more than +19% after the network gear maker posted upbeat Q2 results and issued an above-consensus Q3 revenue forecast. On the bearish side, Norwegian Cruise Line Holdings Ltd (NCLH) plunged about -12% and was among the top percentage losers on the benchmark S&P 500 after issuing disappointing Q3 adjusted EPS guidance. In addition, JetBlue Airways Corp (JBLU) dropped over -8% after the airline cut its FY23 profit forecast. 

Economic data on Tuesday showed that the U.S. ISM manufacturing index came in at 46.4 in July, weaker than expectations of 46.8. Also, U.S. JOLTs Job Openings fell to a 2-year low of 9.582M in June, weaker than expectations of 9.610M. In addition, U.S. June construction spending stood at +0.5% m/m versus a forecast of +0.6% m/m.

“What we’ve seen is that most companies have beaten earnings expectations, but when you peel that back a bit, the underlying expectation is that earnings are going to decline. Investors are digesting earnings and macro numbers and are weighing the possibility of a recession versus a soft landing and what that may mean for rate cuts,” said Mike Olsen, portfolio manager at Motley Fool Asset Management.

Second-quarter earnings season continues in full force, with investors awaiting new reports from major global companies, including Qualcomm (QCOM), CVS Health Corp (CVS), Shopify Inc (SHOP), PayPal Holdings Inc (PYPL), and Kraft Heinz (KHC). Analysts expect aggregate S&P 500 earnings to notch a 5.9% year-over-year decline for the quarter, compared with a 7.9% fall estimated a week earlier.

Today, all eyes are focused on U.S. ADP Nonfarm Employment Change data in a couple of hours. Economists, on average, forecast that July ADP Nonfarm Employment Change will stand at 189K, compared to the previous value of 497K.

Also, investors are likely to focus on U.S. Crude Oil Inventories data. Economists estimate this figure to be -1.367M, compared to last week’s value of -0.600M.

In the bond markets, United States 10-Year rates are at 4.021%, down -0.72%.

The Euro Stoxx 50 futures are down -1.78% this morning as investors shifted away from riskier assets following Fitch’s downgrade of the U.S. sovereign credit. In corporate news, shares of Siemens Healthineers Ag (SHL.D.DX) plunged over -7% after the German medical technology company reported an unexpected drop in quarterly operating profit. Also, Hugo Boss Ag (BOSS.D.DX) dropped more than -2% even after the German fashion house raised its full-year sales and profit guidance. At the same time, Bae Systems Plc (BA-.LN) climbed over +5% after Britain’s biggest defense company raised its 2023 guidance.

The European economic data slate is mainly empty on Wednesday.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.89%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -2.30%.

China’s Shanghai Composite closed lower today as some investors decided to take profits due to the absence of definitive and concrete measures by Beijing to boost the sluggish economy. Despite numerous assurances from top-level Chinese officials to implement measures and bolster the slowing economic recovery, measures introduced so far to stimulate consumption, revive capital markets, and assist the struggling property sector are perceived as either lacking specificity or too moderate in their impact. Also, investors showed little enthusiasm following the Tuesday pledges from Chinese ministries, regulators, and the central bank to provide additional financing support to small businesses and the private sector. Meanwhile, shares of Hong Kong-listed Chinese developers ended slightly lower even after the People’s Bank of China vowed to implement measures to guide mortgage rates and downpayment ratios lower.

“Recent economic data shows that the incremental easing approach had not been effective on sustaining GDP growth momentum,” Chi Lo, Greater China economist at BNP Paribas Investment Partners, wrote in a note.

Japan’s Nikkei 225 Stock Index closed sharply lower today, driven by losses in heavyweight chip-related stocks as investors exercised caution following Fitch’s unexpected sovereign rating downgrade of the U.S. Chip-making equipment maker Tokyo Electron slid over -3% and chip-testing equipment maker Advantest plunged more than -4%. Also, a stronger yen weighed on export-oriented stocks. In corporate news, shares of Nomura Holdings tumbled over -8% after Japan’s top brokerage reported a lower-than-expected profit, attributed to weaknesses in its wholesale business and another overseas loss. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -1.58% to 18.03.

“Japan’s chip-related stocks tracked declines in the Nasdaq, which weighed on Japanese shares,” said Masahiro Ichikawa, a chief market strategist at Sumitomo Mitsui DS Asset Management.

Pre-Market U.S. Stock Movers

Advanced Micro Devices Inc (AMD) rose over +1% in pre-market trading after the company reported upbeat Q2 results and issued solid Q3 revenue guidance. 

Camping World Holdings Inc (CWH) tumbled more than -10% in pre-market trading after reporting downbeat Q2 results.

Match Group Inc (MTCH) climbed over +7% in pre-market trading after the company posted stronger-than-expected Q2 results and provided above-consensus Q3 revenue guidance.

ELF Beauty Inc (ELF) soared more than +17% in pre-market trading after the company reported upbeat Q1 results and raised its FY24 outlook.

Oshkosh Corporation (OSK) gained over +1% in pre-market trading after Baird upgraded the stock to Outperform from Neutral.

Starbucks Corporation (SBUX) dropped about -2% in pre-market trading after reporting weaker-than-expected Q3 global comparable store sales.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Wednesday - August 2nd

Qualcomm (QCOM), CVS Health Corp (CVS), Shopify Inc (SHOP), PayPal Holdings Inc (PYPL), Equinix (EQIX), MercadoLibre (MELI), Ferrari NV (RACE), Humana (HUM), Occidental (OXY), McKesson (MCK), Emerson (EMR), Phillips 66 (PSX), Public Storage (PSA), MetLife (MET), Johnson Controls (JCI), Simon Property (SPG), Trane Technologies (TT), Kraft Heinz (KHC), Energy Transfer (ET), Exelon (EXC), Williams (WMB), Realty Income (O), Yum! Brands (YUM), AmerisourceBergen (ABC), Waste Connections (WCN), Seagen (SGEN), Fidelity National Info (FIS), DuPont De Nemours (DD), DoorDash (DASH), Cognizant A (CTSH), Nutrien (NTR), Verisk (VRSK), HubSpot Inc (HUBS), Xylem (XYL), Ingersoll Rand (IR), CDW Corp (CDW), Albemarle (ALB), Ameren (AEE), Entergy (ETR), Fair Isaac (FICO), Fortis Inc (FTS), Garmin (GRMN), Markel (MKL), Clorox (CLX), Builders FirstSource (BLDR), MGM (MGM), Atmos Energy (ATO), Unity Software (U), Waters (WAT), Bunge (BG), Marathon Oil (MRO), CF Industries (CF), Cameco (CCJ), Host Hotels Resorts (HST), Zillow C (Z), Zillow Group Inc (ZG), Etsy Inc (ETSY), FMC (FMC), Robinhood Markets (HOOD), NiSource (NI), CH Robinson (CHRW), Texas Pacific (TPL), United Therapeutics (UTHR), Amdocs (DOX), Ceridian HCM (CDAY), BorgWarner (BWA), Qorvo Inc (QRVO), Procore Technologies (PCOR), American Financial (AFG), Axa Equitable (EQH), Confluent (CFLT), Sarepta (SRPT), Vertiv Holdings Co (VRT), Generac (GNRC), Repligen (RGEN), Clean Harbors (CLH), Federal Realty (FRT), GXO Logistics (GXO), WWE (WWE), NNN REIT (NNN), Omega Healthcare (OHI), Curtiss-Wright (CW), MKS Instruments (MKSI), Noble (NE), Bausch + Lomb (BLCO), Chord Energy (CHRD), Permian Resources (PR), Axcelis (ACLS), Ufp Industries (UFPI), Selective (SIGI), Watts Water Technologies (WTS), ATI Inc (ATI), Joby Aviation (JOBY), Civitas Resources (CIVI), Kinross Gold (KGC), Valaris (VAL), Louisiana-Pacific (LPX), Informatica (INFA), Parsons (PSN), Maximus (MMS), Wingstop Inc (WING), Rayonier (RYN), Rithm Capital (RITM), Ormat (ORA), Janus Henderson (JHG), MGIC Investment (MTG), National Fuel Gas (NFG), Lincoln National (LNC), Cerevel Therapeutics Holdings (CERE), Colliers International (CIGI), Marriot Vacations Worldwide (VAC), Goodyear Tire & Rubber Co (GT), Summit Materials Inc (SUM), Aurora Innovation (AUR), Driven Brands Holdings (DRVN), Installed Building (IBP), SM Energy (SM), Radian (RDN), Clearwater Analytics Holdings (CWAN), Sunrun Inc (RUN), The Hanover Insurance (THG), Adient (ADNT), Scotts Miracle-Gro (SMG), Black Hills (BKH), Blueprint Medicines Corp (BPMC), Schrodinger (SDGR), Glaukos Corp (GKOS), Northern Oil&Gas (NOG), Extreme (EXTR), Hillenbrand (HI), Clear Secure (YOU), Remitly Global (RELY), EPR Properties (EPR), Evolent Health Inc (EVH), Spirit Aerosystems (SPR), Spire (SR), Broadstone Net (BNL), Inari Med (NARI), Forward Air (FWRD), Jfrog (FROG), LXP Industrial Trust (LXP), FormFactor (FORM), Park Hotels & Resorts (PK), Sitime Corp (SITM), Hayward Holdings (HAYW), Avista (AVA), SSR Mining (SSRM), Frontdoor (FTDR), Boot Barn Holdings (BOOT), Spin Master Corp (SNMSF), Tripadvisor (TRIP), Corcept (CORT), RXO Inc (RXO), STAAR Surgical (STAA), Green Brick Partners Inc (GRBK), Steven Madden (SHOO), AvidXchange Holdings (AVDX), Callon Petroleum (CPE), Callon Petroleum (CPE), Scorpio Tankers (STNG).

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