Futures pointed to a higher start for U.S. stocks Monday, with major indexes sitting just below all-time highs as investors focus on the scheduled signing of a phase one U.S.-China trade deal this week and the kickoff of fourth-quarter earnings season.
What are major indexes doing?
Futures on the Dow Jones Industrial Average YMH20, +0.29% rose 73 points, or 0.3%, to 28,850, while S&P 500 futures ESH20, +0.29% were up 8.3 points, or 0.3%, to 3,273. Nasdaq-100 futures NQH20, +0.40% gained 34 points, or 0.4%, to 9,012.25.
Stocks gave back some ground Friday, but saw weekly gains. The Dow DJIA, -0.46% on Friday briefly traded above the 29,000 milestone for the first time but ended the day down 133.13 points, or 0.5%, at 28,823.77. That left the blue-chip gauge with a weekly rise of 0.7%.
The S&P 500 SPX, -0.29% fell 9.35 points, or 0.3%, on Friday to end at 3,265.35, trimming its weekly rise to 0.9%. The Nasdaq Composite COMP, -0.27% lost 24.57 points, or 0.3%, to finish at 9,178.86, leaving it with a weekly advance of 1.8%.
What’s driving the market?
China’s chief trade negotiator, Vice Premier Liu He, and a delegation are scheduled to arrive in Washington early this week and is expected to sign the so-called phase one trade deal reached late last year. The Wall Street Journal reported that the U.S. and China are also set Wednesday to announce plans for semiannual talks aimed at pushing reforms in both nations and resolving disputes.
“While some question marks remain about the deal – mainly, whether it goes far enough in addressing key issues and how committed the two sides will be in adhering to the agreement – overall, investors are optimistic that the signing ceremony will mark the beginning of better times ahead for Sino-U.S. relations,” said Raffi Boyadjian, senior investment analyst at XM, in a Monday note.
Earnings season is also set to get under way in earnest this week, with JPMorgan Chase & Co. JPM, -1.00% and Wells Fargo & Co. WFC, -0.44% set to release fourth-quarter results on Tuesday. For the entire S&P 500 sector, going beyond big banks, analysts surveyed by S&P Global Market Intelligence look for fourth-quarter earnings to rise 10.5% from a year earlier. That’s the second-largest growth among the 11 sectors. (Utilities are expected to see an 11.8% increase in EPS, with five sectors expected to suffer earnings declines.)
Overall, Wall Street analysts look for fourth-quarter S&P 500 earnings per share, or EPS, to fall 2% from the level reported in the fourth quarter of 2018, said Sam Stovall, chief investment strategist at CFRA, citing S&P Global IQ consensus estimates.
While that might sound ominous, as it would mark the second consecutive quarterly fall in S&P 500 earnings, which would also meet the definition of an earnings recession, “investors shouldn’t get too worked up just yet,” he said. That’s because companies have an uncanny knack for topping the bar set by consensus estimates. In fact, the third quarter marked the 31st consecutive quarter in which the reported change in EPS topped Wall Street estimates, Stovall noted.
“In addition, in those prior 31 quarters, actual results outpaced forecasts by an average 3.8 percentage points,” he wrote. “So should history repeat itself in Q4, and there’s no guarantee it will, EPS growth may come in closer to a 2% advance than a 2% shortfall.”
Which companies are in focus?
Shares of fitness apparel company Lululemon Athletica Inc. LULU, -0.45% could be in focus after it said early Monday that it was lifting earnings and revenue guidance for the fourth quarter, citing momentum over the holiday period. Shares were 3.2% higher in premarket trade.
Aerospace suppliers Woodward Inc. WWD, -0.21% and Hexcel Corp. HXL, -1.87% on Sunday set plans for an all-stock merger that executives said was a response to rising climate-change pressures on the industry. Woodward shares rose 0.9% in premarket trade, while Hexcel shares gained 1.5%.
What’s on the economic calendar?
Boston Federal Reserve Bank President Eric Rosengren is set to deliver a speech in Hartford, Connecticut, at 10 a.m. Eastern, while Atlanta Fed President Raphael Bostic is scheduled to speak at a Rotary Club of Atlanta event at 12:40 p.m. Eastern. Neither Rosengren nor Bostic are voting members of the Fed’s rate-setting panel this year.
December figures on the federal budget are due at 2 p.m. Eastern.