U.S. stock indexes rose on Wednesday, following Wall Street’s recent rally, although sentiment remains fragile.
Wall Street indexes rose on Tuesday, showing signs of improvement and recovering some of the heavy losses registered the previous week amid concerns about a possible U.S. recession and a slowdown in the technology sector.
The S&P 500 along with the NASDAQ Composite, rose 1%, rebounding from three-month lows, while the Dow Jones Industrial Average was up about 0.8%.
The futures were boosted by comments from a senior Bank of Japan official who downplayed the bank’s plans to raise interest rates, in an environment where markets remain volatile.
Highly stressed market environment
Confidence in risk assets remains fragile amid persistent concerns about slowing growth and lackluster earnings.
Goldman Sachs indicated that its Financial Stress Index (FSI) has tightened considerably in recent days, although it remains within normal historical levels.
According to a note by Goldman economists, most of the tightening is due to increased volatility in equity and fixed income markets, while short-term financial market conditions appear to be generally stable.
The economists also noted that market tightness is more noticeable today than a week ago, but for now, according to their FSI, there is no need for policymaker intervention.
Walt Disney Results
There are more earnings to digest Wednesday, including entertainment giant Walt Disney (DIS), CVS Health (CVS), and Shopify (SHOP).
Super Micro Computer (SMCI) likewise will be in the spotlight, due, as shares of the data center operator plunged in pre-market trading in the wake of its June earnings missing estimates, raising concerns about the demand generated by the artificial intelligence industry.
Airbnb (ABNB) also fell sharply after the home-rental company provided third-quarter revenue estimates and signaled shorter booking windows, indicating that travelers were waiting until the last minute to book in the wake of economic uncertainty.
The resilience of S&P 500 earnings remains unchanged despite growing recession fears and recent negative price action, Citi strategists said in a note Wednesday.
The bank’s Citi Economic Data Change Index, which summarizes U.S. macroeconomic data holdings, points to further deterioration in the U.S. economy.
Interestingly, though, despite economic data showing weakness in 2022, S&P 500 earnings growth was unchanged rather than significantly negative, as earnings recessions in certain sectors mitigated the impact at the overall index level.
Strategists remain confident in their forecast of $250 per share for the S&P 500 this year, which is slightly higher than the current bottom-up consensus of about $243.
