Earnings in focus include 'Magnificent Seven'

European stocks edged higher and US equity futures kept to small ranges as investors looked forward to a rush of major earnings for insights on whether the record-breaking rally on Wall Street can continue.

Europe’s Stoxx 600 index crept to a new two-year high as banks and media stocks led gains. US equity futures were steady after another record close on Wall Street stretched the S&P 500’s gains this month to 3.3%. The Nasdaq 100 has surged 4.6%. 

US earnings grab the limelight later as the busiest week so far of this reporting season moves up a gear. Microsoft Corp. and Alphabet Inc. will offer the first evidence of whether the bullish sentiment around the so-called Magnificent Seven looks sustainable. By the time Apple Inc., Amazon.com Inc. and Meta Platforms Inc. are done reporting Thursday, five tech giants with a combined market value exceeding $10 trillion will have updated the market.

The tech rally has been fueled by expectations that interest-rate cuts from the Federal Reserve will help fuel earnings growth. While the Fed is expected to hold rates this week, investors are keenly awaiting comments from Chair Jerome Powell after Wednesday’s decision for clues on the policy outlook. Traders are assigning roughly even odds to the prospect that the central bank will start lowering borrowing costs at its next meeting in March.

“Everything will play out in the next three days between the Fed meeting and the US tech results,” said Alexandre Baradez, chief market analyst at IG Markets in France. “The market is waiting for Powell to open the door for a rate cut in March, but it could very well be signaled for the second quarter.”

The role of a small number of stocks in driving the rally on Wall Street poses a risk to the market and has a lot in common with the dot-com bubble, according to JPMorgan Chase & Co. quantitative strategists led by Khurram Chaudhry.

The share of the top 10 stocks on the MSCI USA Index, including all of the Magnificent Seven — Apple, Microsoft, Nvidia Corp., Alphabet, Amazon, Meta and Tesla Inc. — has risen to 29.3% as of the end of December. That’s just moderately below the historical peak share of 33.2%, which occurred in June 2000, the strategists wrote. And just four sectors are represented in the top 10 stocks, against a historical median of six.

“The key takeaway is that extremely concentrated markets present a clear and present risk to equity markets in 2024,” Chaudhry said. “Just as a very limited number of stocks were responsible for the majority of gains in the MSCI USA, drawdowns in the top 10 could pull equity markets down with them.”

Treasury yields extended their drop Tuesday after a cut in the quarterly borrowing estimate by the US Treasury eased concerns about the flood of debt being issued to cover the federal deficit. The dollar was steady.

In commodities, oil edged higher as traders assessed news that Saudi Aramco has abandoned a plan to raise oil production capacity to 13 million barrels a day and maintain it at 12 million instead. Markets also waited for a US response to the deadly attack on American troops in Jordan, which could risk an escalation of tensions in a region key to global crude production. 

In Asia earlier, stocks slipped, led by declines in China amid growing pressure on policymakers to cut rates to boost the economy. Hong Kong stocks fell more than 2%, while those on the mainland were poised to decline for a third day. The impact of China Evergrande Group’s liquidation order on Monday pushed a Bloomberg index of Chinese developers over 4% lower. 

China’s benchmark government bond yield fell to its lowest in nearly 22 years as mounting expectations for further monetary easing increased.

Elsewhere, Nigeria’s naira plunged to a record against the dollar following a revision of the methodology used to set the exchange rate, in effect the second devaluation of the currency in seven months. The local unit depreciated 31% to 1,413 naira a dollar on Monday in the so-called NAFEX fixing, the official foreign exchange window, according to data published by FMDQ, which calculates the exchange rate for the West African nation.

Key events this week:

• Eurozone economic confidence, GDP, consumer confidence, Tuesday
• US Conf. Board consumer confidence, JOLTS jobs openings, Tuesday
• Microsoft, Alphabet earnings, Tuesday
• China non-manufacturing PMI, manufacturing PMI, Wednesday
• Japan industrial production, retail sales, housing starts, Wednesday
• Bank of Japan issues summary of opinions from January policy meeting, Wednesday
• Boeing announces earnings amid US government safety probe, Wednesday
• Federal Reserve interest rate decision and Fed Chair Jerome Powell’s news conference, Wednesday
• US Treasury quarterly refunding, Wednesday
• China Caixin manufacturing PMI, Thursday
• Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Thursday
• US productivity, construction spending, ISM Manufacturing, initial jobless claims, Thursday
• Apple, Amazon, Meta, Deutsche Bank, BNP Paribas earnings, Thursday
• Bank of England interest rate decision, Thursday
• US employment report, University of Michigan consumer sentiment, factory orders, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.3% as of 10:30 a.m. London time
• S&P 500 futures were little changed
• Nasdaq 100 futures were little changed
• Futures on the Dow Jones Industrial Average fell 0.1%
• The MSCI Asia Pacific Index fell 0.4%
• The MSCI Emerging Markets Index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0830
• The Japanese yen rose 0.2% to 147.26 per dollar
• The offshore yuan was unchanged at 7.1875 per dollar
• The British pound fell 0.2% to $1.2680

Cryptocurrencies

• Bitcoin rose 0.5% to $43,391.69
• Ether rose 0.2% to $2,310.04

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.05%
• Germany’s 10-year yield was little changed at 2.24%
• Britain’s 10-year yield declined one basis point to 3.86%

Commodities

• Brent crude was little changed
• Spot gold rose 0.2% to $2,036.70 an ounce

This story was produced with the assistance of Bloomberg Automation.