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(Reuters) – U.S. stock indexes were headed for a lower open on Monday as investors braced for the start of the earnings season, which could see profits come under pressure at a time of growing fears of an economic downturn due to aggressive interest rate hikes.
After a dismal first half of the year, Wall Street started July on an upbeat note, however, market participants fear upcoming quarterly results could trigger another selloff, with earnings potentially falling short of estimates.
Trading was choppy last week, but investors took some relief from easing commodity prices and the U.S. Federal Reserve hinting at a more tempered program of rate hikes amid growing concerns of a global recession.
All the three benchmark indexes ended the week higher on Friday, while the Nasdaq posted a gain for the fifth straight session.
The market is now largely pricing in a 75-basis-point rate increase later in July, however concerns about the pace of future hikes have grown after a stronger-than-expected jobs report on Friday.
The report, which signaled a still strong labor market helped alleviate some fears about an immediate recession, but added to worries about more aggressive monetary policy tightening by the Fed to stamp out soaring inflation.
Big banks such as JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C) and Morgan Stanley (NYSE:MS) are due to post earnings later this week, and their results will be parsed for any signs of slowing economic growth. The banks’ shares fell between 0.5% and 1% in premarket trading.
“Not only are people worried that earnings are going to come in weak because of an economic slowdown, but also because of the rise of the U.S. dollar which creates a headwind for earnings for multinationals,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.
Banks, which mostly benefit from rising interest rates are also expected to take a hit from weakness in M&A activity and advisory business, according to Pavlik.
An increase in loan loss reserves is expected to impact second-quarter profits at big U.S. banks.
Focus will also be on U.S. consumer prices data later this week to gauge the state of inflation and how aggressively the Fed could respond.
At 8:24 a.m. ET, Dow e-minis were down 157 points, or 0.5%, S&P 500 e-minis were down 24.25 points, or 0.62%, and Nasdaq 100 e-minis were down 89.25 points, or 0.73%.
Shares of Twitter Inc (NYSE:TWTR) fell 6% after Elon Musk, chief executive of Tesla (NASDAQ:TSLA), said on Friday he was terminating his deal to buy the social media company.
U.S. casino operators Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN) and Melco Resorts were down between 4.6% and 6.1% after Macau shut all its casinos for the first time in more than two years in a bid to contain the spread of COVID-19.
Under Armour Inc (NYSE:UAA) dropped 2.1% after Jefferies cut its rating on the sportswear maker’s stock to “hold” from “buy”.
