US Equities Start Ahead As Q1 Earnings Season Kicks Off

The Dow Jones Industrial Average added around 66 points to stand at 34,286. The S&P 500 added around nine points at 4,407. The tech laden Nasdaq index gained around 34 points to stand at 13,406

US benchmarks started marginally ahead on Wednesday after a volatile start as first quarter earnings season kicked off.

Analysts have lowered expectations for corporate earnings amid the continuing coronavirus (Covid-19) pandemic, rising inflation and the war in Ukraine. Earnings for S&P 500 companies are reportedly expected to increase by 4.5% in the three months to end-March – the lowest growth since the fourth quarter of 2020.

Big bank JPMorgan saw shares drop nearly 3% on the day as it unveiled a 42% slip in first-quarter profit, which it put down to increased costs for bad loans and market upheavals. The company did report, however, $31.59 billion in revenue for the period, which was slightly more than had been expected by analysts.

US stocks are set for a rebound on Wednesday ahead of major earnings releases and as investors find some measure of comfort that inflation may be starting to peak. JPMorgan Chase, Delta Air Lines (NYSE:DAL) and BlackRock are some of the biggest companies expected to release their earnings results. Investors will be paying particular attention to the guidance they will provide for their performance for the rest of the year.

Data released yesterday showed US consumer prices accelerated in March, with the index rising 8.5% from a year ago. But while it is the fastest increase since December 1981, economists say there are bright sparks in the report, indicating that inflation may begin to roll over in the next few months.

Futures for the Dow Jones Industrial Average rose 0.32% in pre-market trading, while those for the S&P 500 gained 0.35% and contracts for the tech-heavy Nasdaq-100 were 0.41% higher.

Core inflation, which filters out the impact of volatile food and energy prices, came in at the lowest since September, giving some hope to investors that inflation may soon hit a high and start easing.

This will take the pressure off the US Federal Reserve to move less hurriedly to raise its benchmark funds rates, widely expected at a series of 50 basis-point hikes in the coming few months.

While a rebound in Wednesday’s trading session is expected, high energy prices, the ongoing pandemic and the war in Ukraine will combine to keep the market’s outlook depressed.

Expectations for bank earnings are soft this quarter. The net income for the six biggest American banks is expected to fall about 35% from a year ago, also including the major deceleration in activity in March due to the war in Ukraine and losses from exiting their operations in Russia. JPMorgan CEO James Dimon had warned that the bank could lose about US$1 billion from its Russian exposure.

Elsewhere, oil prices rebounded on supply worries after Russian President Vladimir Putin said Moscow’s offensive in Ukraine will continue now that peace talks had reached a dead end. The benchmark Brent crude futures was at $106.25, up 1.5%.