Written by Samer Hasn, Senior Market Analyst at XS.com
S&P 500 E-mini futures are up more than 0.2% in early premarket trading after three straight days of gains for the index. Nasdaq 100 futures are also up by the same amount.
These gains are driven by mostly better-than-expected results from major US corporates announced earlier this week. The market is counting on strong earnings to prove that corporates will be able to cope with the upcoming negativity, especially from the potential escalation of the trade war and the tightening outlook for monetary policy.
We saw better-than-expected quarterly results from Arm Holding followed by a wave of selling in the company’s stock in after-hours trading on profit-taking, according to Barron’s. AMD’s results were better than Wall Street expectations but were met with a very negative reaction in the market due to concerns about the data center business, competition and the company’s insufficient comments about the future, according to Barron’s as well.
In any case, I think the results of both companies indicate the strength of demand in the AI market until the end of the fourth quarter of last year, and this is a very important part that the markets need to follow the upward trend, especially amid the concerns that prevailed about the future of demand after the shock caused by the low-cost AI product from China’s DeepSeek. This is what investors need in Nvidia as well, whose shares are up nearly 2% on the German Gettex stock exchange today.
What the market also needs are signs about the strength of the US economy in light of the monetary tightening that is expected to remain in place through the first half of this year. While the better non-farm employment number from ADP reinforced this hypothesis, at the same time it did not deepen concerns about the path of interest rates and Treasury yields continued to decline, which may contribute to making room for the market to reap gains.
While the ADP data came ahead of a mixed report from the Institute for Supply Chain Management (ISM) on services activity, which saw a smaller-than-expected expansion, most sub-sectors expanded and employment activity grew for the fourth straight month.
As for the outlook for monetary policy, according to the CME FedWatch Tool, it is unlikely that the Federal Reserve will cut rates before June.
Also on the monetary side, but from Japan, Bank of Japan policymaker Naoki Tamura said that the central bank should accelerate the pace of interest rate hikes this year to 1% or more starting in October. While these hawkish comments suggest that there could be a higher-than-expected tightening of monetary policy, according to The Wall Street Journal.
Frequent hawkish signals from the Bank of Japan could be a source of concern for the US stock market, given the impact of higher borrowing costs on Wall Street investors to finance their bets.
From Asia, markets are also waiting for developments in the escalation of the US-China trade war. The latest chapters of this escalation were China’s retaliatory measures to impose limited restrictions on exports of some rare earths, impose tariffs on some US imports, and target Apple and Google with competition investigations. While these retaliatory measures are seen as limited and still leave room for negotiation, they could also draw more hostility from Donald Trump to escalate the war.
