5 min read Shawn Cruz Director of Derivative Strategy, TD Ameritrade

(Monday Market Open) Equity index futures are pointing to a higher open as the 10-year Treasury yield (TNX) rose 55 basis points ahead of the market open. Rising yields suggest that investors may not be as worried about safe havens on Monday and some investors may be ditching bonds to buy stocks. Additionally, multinational companies may get some relief from sellers because the U.S. Dollar Index ($DXY) has pulled back 0.84% in premarket action. Potential Market Movers

With a decent close on Friday, buyers may be coming back into stocks which could provide some price stability. The Cboe Market Volatility Index (VIX) has fallen back below 30 but remains higher relative to its historic levels—a reminder to investors that we aren’t out of the woods yet. The VIX at these levels suggests that the market could still rise or fall by 1%. This means stocks are still susceptible to headline risk.

With that said, the Dow Jones Industrial Average ($DJI) may have a good start to ending its eight-week losing streak because the Dow futures rose more than 1% in premarket trading. However, there’s another busy week of earnings and economic announcements ahead including durable goods orders, FOMC meeting minutes, and the PCE price index. However, today’s calendar is relatively free of major economic or earnings reports.

Earnings season is nearing its end. As of Friday, 474 of the S&P 500 (SPX) companies have reported quarterly earnings per Refinitiv. Some 77.6% of companies have reported better-than-expected earnings, higher than the long-term average of 66% but lower than the previous four-quarter average of 83.1%. Energy companies continue to dominate the earnings picture. The Q2 earnings growth rate for the S&P 500 is 11.1% but when energy is excluded, it falls to 5%. The energy sector has an earnings growth rate of 268.8%.

Inflation continues to drive stock prices. The materials sector is second to energy in earnings growth at 46.2% as prices of raw materials remains high. Consumer discretionary is the worst-performing sector of the S&P 500, falling 28.3% as consumer sectors are facing higher input costs that are slashing profit margins. The PCE price index, better known as the Federal Reserve’s favorite inflation measure, will be released on Friday.

European markets assisted Monday’s bullish sentiment as the Stoxx Europe 600 was up 0.78% helped by positive news from Germany. The German IFO Business Climate Index and the nation’s Business Expectations report unexpectedly rose in May, beating forecasts. The German DAX rose 0.88% on the news.

The World Economic Forum’s annual meeting started today in Davos, Switzerland. While the meeting doesn’t normally move markets, it may be an important time for countries to reestablish relationships with shrinking risks from the pandemic making room for new ones on the geopolitical front. Reviewing the Market Minutes

The S&P 500 (SPX) traded briefly into bear market territory on Friday, falling as much as 2.45% during the session to extend losses from its all-time high to 20.5%. However, a late-day rally took the benchmark index off its lows to close up a slim 0.01%, narrowing its decent from its all-time high to 18.6%. The S&P 500 almost joined other major indexes like the Nasdaq Composite ($COMP) and the Russell 2000 (RUT) now well into their respective bear markets. The Dow Jones Industrial Average ($DJI) remained outside of this bear country because it was down about 15% from its high during the session.

One reason for the increased volatility on Friday was that $1.9 trillion of options’ notional value—the total value if all options were exercised—expired. Additionally, investors took to bonds during the session, pushing prices higher and yields lower. The 10-year Treasury yield (TNX) fell 68 basis points to 2.787%. The yield appears to be sitting on long-term support.

Despite falling yields, growth stocks looked like they would continue to underperform value stocks. The S&P 500 Pure Growth Index fell 3.15% while the S&P 500 Pure Value Index fell 2.36%. However, the rally trimmed the losses on the growth index to just 0.12% by the end of the session and the value index finished lower at 0.28%.

Oil futures closed barely positive at $110.05 per barrel creating that commodity’s fourth straight week of gains. Higher oil prices helped many clean energy stocks trade higher on Friday. RBOB gasoline futures also rose 0.55%.

Despite the higher oil and gasoline prices, Tesla (TSLA) fell 6.42% on the day, down more than 48% from its high. However, the entire electric vehicle group has […]

source A Falling U.S. Dollar Could Give Multinational Stocks a Boost on Monday

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