Microsoft’s Impact: S&P 500 Futures Stand Strong Near Record Levels

Early on Tuesday, U.S. stock index futures hovered near their record highs in anticipation of an upcoming earnings report from the widely acclaimed Microsoft.

Current Stock-Index Futures Trading:

• S&P 500 futures (ES00, -0.13%) saw a minor decline of 5 points, or 0.1%, settling at 4949.
• Dow Jones Industrial Average futures (YM00, -0.18%) dropped by 48 points, or 0.1%, reaching 38440.
• Nasdaq 100 futures (NQ00, -0.05%) eased by 12 points, or 0.1%, reaching 17694.

On Monday, the Dow Jones Industrial Average (DJIA) recorded a gain of 224 points, or 0.59%, closing at 38333. The S&P 500 (SPX) experienced an increase of 37 points, or 0.76%, reaching 4928, and the Nasdaq Composite (COMP) gained 173 points, or 1.12%, closing at 15628.

Key Drivers in the Market:

The U.S. corporate earnings reporting season for the fourth quarter of 2023 is entering a crucial phase on Tuesday, with investors cognizant of the recent surge in stocks to new heights, allowing little room for disappointment.

On Monday, the S&P 500 achieved its sixth record of 2024, marking a 17.5% rally in the last three months. This surge has been driven by significant gains in large technology stocks, especially those expected to benefit from the sales of AI-related technology, including hardware like chip-maker Nvidia (NVDA, +2.35%) and software like Microsoft (MSFT, +1.43%).

This narrative has propelled Microsoft’s market value beyond $3 trillion, following an impressive 65% surge in the past 12 months. It has also elevated its next-12-month price/earnings ratio to 33.4, a multiple notably higher than in recent years.

Investors eagerly await Microsoft’s results and forecasts, slated for after Tuesday’s closing bell, seeking validation for the prevailing market optimism, particularly given its substantial 7.3% weighting in the S&P 500. Option pricing suggests Microsoft shares may experience a movement of approximately ±2.5% by the end of the week, according to MarketWatch calculations.

Other Noteworthy Earnings Reports: In the next few days, earnings reports from four other influential stocks, referred to as the ‘Magnificent 7,’ are expected. This includes Alphabet (GOOG, +0.68%) on Tuesday, followed by Apple (AAPL, -0.36%), Amazon (AMZN, +1.34%), and Meta (META, +1.75%) on Thursday.

“The price reaction to 5 of the ‘Mag 7’ reports…[is] critical for overall market direction,” emphasized Julian Emanuel, a strategist at Evercore ISI.

Additional companies releasing results on Tuesday include Pfizer (PFE, +0.04%), General Motors (GM, +0.60%), UPS (UPS, -0.80%), and HCA Healthcare (HCA, +1.16%) before the opening bell on Wall Street, followed by Advanced Micro Devices (AMD, +0.33%), Starbucks (SBUX, +1.08%), Electronic Arts (EA, -0.60%), and Juniper Networks (JNPR, +0.08%) after the close.

Supporting market sentiment on Tuesday are softer Treasury yields. The benchmark 10-year yield (BX:TMUBMUSD10Y) has retraced toward the 4% mark after the Treasury announced reduced borrowing needs for the first quarter on Monday.

The Federal Reserve commences its two-day policy meeting on Tuesday, with no anticipated changes in interest rates this month.

Scheduled U.S. economic updates on Tuesday include the S&P Case-Shiller home price index for November at 9 a.m. Eastern, followed by the December job openings report and January consumer confidence at 10 a.m.