tiprankstipranks
U.S. Futures Up as Investors Look for Stock Market Bottom
Market News

U.S. Futures Up as Investors Look for Stock Market Bottom

Story Highlights

As uncertainty grips the economy amid inflation and fears of recession, stock futures reflect the hope of some investors. Market participants are trying their best to understand the outcome of the lows that the markets are currently facing.

UPDATE (4:30) – Tough Macro Factors Continue to Impact Businesses

As China continues to enforce its zero COVID-19 policy through the use of shutdowns, Airbnb (ABNB) has decided to end its domestic business in China. This comes after being operational in the country since 2016.

China accounts for only 1% of the company’s revenue, meaning that there will be minimal impact on top-line growth. However, this will likely improve earnings going forward since the operation was clearly a money-losing venture. Otherwise, it wouldn’t have been shut down.

The market appears to have had a minimal reaction to the news, with the stock finishing the day up 0.65%.

Airbnb isn’t the only company that has to reduce spending. Klarna, a buy now, pay later firm, announced it will be cutting its workforce by 10%. Since the company is private, its valuation only changes when raising money from new investors.

Therefore, its valuation has remained untouched at $46 billion based on its last funding round – until now. Klarna intends to raise funds in order to weather the storm, at a valuation of $30 billion.

This is likely the reason why publicly traded buy now, pay later company Affirm (AFRM) closed down 1.21% despite the rally in the broader market. As consumer spending continues to shift from discretionary items to essential ones, BNPL firms will continue to feel the pinch.

UPDATE (3:45) – The Number of Large Technology Acquisitions Continues to Grow

Shares of Electronic Arts (EA) and VMware (VMW) are trading higher today on reports that they may be potential takeover targets.

Chipmaker Broadcom is in talks to acquire VMware as it looks to add exposure to software. Electronic Arts, on the other hand, is actively looking for a buyer and has had talks with a number of companies. These include Disney (DIS), Amazon (AMZN), and Apple (AAPL).

There has been a lot of acquisition activity in the technology industry so far this year, which has hit $263 billion year-to-date. This is an increase of 46% year-over-year for the same time period.

This suggests that many large players see the recent turmoil in markets as a great opportunity that hasn’t been present in a long time. Indeed, buying during such times is a much more capital-efficient way to expand into new industries via acquisitions, as it lowers the potential risk of overpaying.

This may be a sign for investors that CEOs of large companies are confident in the outlook of the economy and that recession fears may be overblown.

Electronic Arts is currently up over 2% while VMware is up over 20% on the day.

UPDATE (1:15) – Americans Worried About the Economy Despite Strong Financial Circumstances

On Monday, the Federal Reserve released its Annual Survey of Household Economics and Decisionmaking. The survey, which examines the financial lives of U.S. adults and their families, came out with mixed results.

Of the 11,000 respondents, only 24% believed that economic conditions were good or excellent. This compares to the 26% who said the same thing in 2020 when economies all over the world were faced with lockdowns.

This is an interesting development because the survey was conducted in October and November of 2021, which was during the start of what would become a red hot inflation trend. Thus, although inflation was on the mind of consumers, it wasn’t to the extent that it is now.

This suggests that sentiment may be even lower now as inflation exceeds 8%. For reference, 50% of respondents believed that economic conditions were good or excellent in 2019.

However, there was some good news in the report, as most households believe they have strong financial circumstances. 53% of low-income families reported that they were doing OK or living comfortably, an increase of 13% from 2020. Overall, 78% of Americans believe that they are OK or living comfortably, which is the highest reading since the survey started in 2013.

This could suggest to the Federal Reserve that the economy has the ability to absorb higher interest rates, giving it the green light to continue being hawkish.

UPDATE (11:35) – Starbucks Investors not Bothered by Russia Exit

Starbucks (SBUX) announced on Monday that it would be exiting the Russian market, despite operating in the country for 15 years. Unlike most other Western companies leaving Russia, which have decided to sell their operations, Starbucks has opted to liquidate the business instead.

This comes after Starbucks paused operations in March following the invasion of Ukraine. The company has 130 locations in Russia that are licensed out to local partners, which employ approximately 2,000 workers.
Fortunately for Starbucks, Russia accounts for only 1% of total revenue, which is much less than some of its competitors.

However, the company noted that it would continue to pay employees for six months. Since revenue will decline while employee and other expenses remain, it will likely translate into an earnings decline of more than 1% in the near to medium term.

The stock price initially fell by slightly over 1% in the first half-hour of trading but has since recovered, as it turned positive on the day, along with the broader market, as both try to recover from the previous week’s sell-off. The stock is currently up over 1%.

Starbucks investors don’t appear to be worried about this development, suggesting that such a scenario has already been priced into the stock price.

U.S. Futures Up as Investors Look for Stock Market Bottom

Stock futures moved up in the early morning trading hours of Monday amid the ongoing uncertainty that has been shrouding the market.

Futures contracts tied to the Dow Jones Industrial Average (DJIA) were up 0.73%, while those on the S&P 500 (SPX) inched 0.78% higher, as of 6:49 a.m. EST, Monday. Meanwhile, the Nasdaq 100 (NDX) futures moved above the flatline by 0.62%.

On Friday, the S&P 500 finally lost its grip and slipped into a bear market zone briefly during regular trading. The index fell 20% below its record high in January, with a 2.3% intraday dip before recovering some of its losses and eventually closing 0.01% higher. It currently stands 1% away from crossing over to bear market territory.

Meanwhile, the Dow sank down to 600 points before settling 0.03% higher at Friday’s closing bell, and the Nasdaq ended 0.34% lower.

Last week, the Dow fell for its eighth consecutive week as fears grew of a demand shock in response to the surging inflation. Meanwhile, the Nasdaq is already deep in the grip of the bear, down about 30% from its recent high.

As consumers start to feel the pinch of inflation, a demand retraction is being recorded by companies dealing in sectors like retail and consumer staples. Last week, the consumer staples sector slid 8.63%, while consumer discretionary and communication services fell more than 32% below their 52-week highs.

Discover new investment ideas with data you can trust

Read full Disclaimer & Disclosure.

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles