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Stocks Tread Water as Earnings Season Gathers Pace

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08/04/2020 | 05:44am EDT

By Caitlin Ostroff

U.S. stock futures wavered Tuesday as a slew of major companies reported earnings, some of them beating already low expectations from coronavirus economic troubles.

Futures tied to the S&P 500 declined 0.3%, indicating that the benchmark index could come under pressure after the New York opening bell. The pan-continental Stoxx Europe 600 fell 0.2%.

In Europe, shares in BP climbed 6.4% after the British oil-and-gas producer slashed its quarterly dividend for the first time in a decade and launched a new strategy to pivot away from oil and gas. Discount airline easyJet rose 8% on a better-than-expected outlook.

Private-equity firm KKR & Co. and energy company Exelon are among those reporting quarterly profits before the opening bell. More than three-quarters of S&P 500 companies have reported earnings, with the majority beating analyst expectations, according to UBS. This has led estimates for the third quarter to rise by 2.5% since the end of June.

Robust earnings from tech companies have lifted U.S. stock markets higher in recent weeks, with the Nasdaq Composite climbing to a fresh record Monday.

Investors, who worried that an uptick of coronavirus infections last month would slow economic recovery, have been closely watching a recent decline in new cases.

"One day's data doesn't mean anything, but I'm looking at whether that's the beginning of a trend," said Fahad Kamal, chief market strategist at Société Générale's private banking and wealth management division Kleinwort Hambros.

Bond markets have remained cautious though, with bond yields ticking lower even as stocks have climbed, Mr. Kamal said. The yield on the 10-year Treasury declined to 0.548% from 0.562% Monday.

"There's more truth in the bond market, and if you look at the yields they're still at record lows. There's still a very palpable sense of fear among investors that there could be tail risks that materialize," he said.

Markets are monitoring negotiations among Democratic leaders and White House officials on a new coronavirus aid package. The two sides remain at odds over whether to cut a $600-a-week federal jobless supplement or provide aid to financially strapped states and localities.

"The market's assumption is that the U.S. economy is not yet ready to stand on its own two feet. It appears that there is agreement that more needs to be done, it's just about the shape of that package," said Hugh Gimber, strategist at J.P. Morgan Asset Management.

Shares in spirits maker Diageo, which owns Johnnie Walker whiskey and Smirnoff vodka among other brands, fell 6.5% after it reported that operating profit fell as the coronavirus pandemic drove down sales in the second half of the year. North American sales were strong as consumers shifted alcohol buying from bars to grocery stores, but the growth didn't make up for shortfalls in other markets.

Shares in Bayer fell 3.4% after the chemicals and pharmaceuticals company said it swung to a net loss of EUR9.55 billion ($11.23 billion) in the second quarter. Bayer set aside provisions for its multibillion-dollar settlement with plaintiffs alleging the company's Roundup herbicides cause cancer.

In the Asia-Pacific region, Hong Kong's Hang Seng climbed 2%, leading gains in the region. Japan's Nikkei 225 gained 1.7% and Australia's benchmark S&P/ASX 200 rose 1.9%.

Walt Disney will report earnings after trading ends.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL 0.27% 27867.56 Delayed Quote.-2.65%
HANG SENG 0.78% 23506.87 Real-time Quote.-16.61%
NASDAQ 100 0.88% 11528.499944 Delayed Quote.29.66%
NASDAQ COMP. 0.85% 11270.869203 Delayed Quote.24.46%
NIKKEI 225 0.00% 23184.93 Real-time Quote.-1.99%
S&P 500 0.44% 3378.94 Delayed Quote.3.24%
S&P/ASX 200 0.98% 5872.9 Real-time Quote.-12.99%
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