U.S. stocks seen opening at highest in 15 months amid earnings optimism

What’s driving markets

Optimism that a well-received corporate earnings reporting season can help stocks extend their latest rally suggests the main Wall Street stock indexes in line for their highest open in 15-months on Wednesday.

Results from the banking sector, which kicked off the second quarter earnings season, have generally gone down well with investors, and Wednesday sees more financials reporting in the form of Goldman Sachs
GS,
+3.08%
and U.S. Bancorp
USB,
+3.66%.

After the closing bell some market darlings take the stage, with Tesla
TSLA,
+1.02%
and Netflix
NFLX,
+5.50%
presenting their figures.

Also underpinning sentiment is hope that slowing inflation can help central banks soon stop increasing borrowing costs and that the interest rate rises to date have yet to badly damage the U.S. economy.

On that front there was some better news from the U.K., where data showing consumer prices rose at their slowest pace in more than a year sparked not only a slide for the pound
GBPUSD,
-0.91%
but also a drop in U.S.
TMUBMUSD10Y,
3.743%
and European government bond yields, and to a lesser extent a brief uptick in S&P 500 index futures.

“Markets took some solace from the latest corporate and economic news, with hopeful signs that runaway inflation may be abating,” said Richard Hunter, head of markets at interactive investor.

“In the U.S., the likelihood of a further interest rate rise next week from the Federal Reserve is all but a done deal, although more recent indicators suggest that the hike could mark the end of its aggressive monetary tightening offensive. The current reporting season is off to a strong start, albeit against low expectations, pointing to an economy which has yet to suffer from the rising interest rate environment, Hunter added.

Mark Newton, head of technical strategy at Fundstrat, said the stock market’s recent gains means a period of consolidation may be nearing, but that the technical set up remains positive.

“[I]t remains difficult to get too bearish when DJIA and [the Dow Jones Transportation Average ] have just broken out to the highest levels since last spring while key index constituents like
MSFT,
+3.98%
have just broken out to new all-time high territory. It’s necessary to await the reversal. At present, as discussed above, market structure is improving, not deteriorating. The next 7-9 trading days of July should offer some clues in this regard,” said Newton.

In U.S. economic data, construction of new homes fell 8% in June, as U.S. homebuilders sharply slowed down starting on new single-family homes and focusing on finishing existing projects. The pace of construction slowed from a jump of nearly 16% the previous month.

Companies in focus

• Goldman Sachs Group Inc. 
  GS,
  +3.08%
  stock was down 1.7% in premarket trades Wednesday after the bank reported second-quarter earnings that fell short of Wall Street’s lowered expectations.

• Interactive Brokers Group Inc.
  IBKR,
  +2.95%
  slid almost 5% after the online banking company reported fiscal second-quarter results that fell short of analysts’ estimates.

• United Community Banks Inc.
  UCBI,
  +3.78%
  fell 3.7% after the regional bank reported second-quarter results that came up short of estimates, as competition to attract new customers drove up costs. 

• Carvana Co.
  CVNA,
  +8.95%
  rallied 43% early Wednesday after the used-car retailer easily topped sales expectations for its latest quarter and announced a deal with noteholders to restructure its debt.

• AT&T
  T,
  -0.59%
  and Verizon Communications
  VZ,
  +2.57%
  saw their stock rise by 5% and 3%, respectively. AT&T said in a Tuesday court filing that it would hold off on prior plans to remove lead-sheathed cables running underneath California’s Lake Tahoe amid recent reporting on the legacy cables.