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Dow futures jump 170 points on strong earnings reports

Dow futures jump 170 points on strong earnings reports

19 Oct 2021

U.S. stock futures gained on Tuesday as major companies continued to report strong third-quarter earnings, easing concerns that persistent Covid cases and rising costs would derail corporate America’s profit recovery.

Futures tied to the Dow Jones Industrial Average climbed 176 points, or 0.5%. S&P 500 futures added 0.5% and Nasdaq 100 futures advanced 0.3% The Dow and the S&P 500 come into Tuesday both sitting about 1% from record highs.

Johnson & Johnson reported $2.60 in adjusted earnings per share for the third quarter, topping the consensus estimate from Refinitiv of $2.60. The drugmaker also raised its forecast for the year. Shares gained 1.7% in premarket trading.

Fifth Third Bancorp shares gained 1% in premarket trading after reporting better-than-expected EPS and revenue.

Through the end of last week, 80% of S&P 500 companies that have reported beat earnings expectations, according to FactSet. Taking into account those reports and estimates for those to come, third-quarter profit growth will come in at 30%, according to FactSet.

Other major reports later Tuesday include Procter & Gamble, Netflix and United Airlines.

On Monday, the S&P 500 and Nasdaq Composite notched their fourth day of gains. The S&P 500 rose 0.34%. The Nasdaq was the relative outperformer, gaining 0.84% as Facebook, Amazon, Apple, Netflix and Google-parent Alphabet all closed higher. The Dow Jones Industrial Average lost 36 points, dragged down by a 3% drop in Disney‘s stock.

While reports have been strong, investors are looking for commentary from corporate America about supply chain issues and inflation.

“The financials got earnings season off to another strong start, but let’s be honest, COVID and supply chain issues aren’t going to impact this group. Now it gets very interesting to see what other industries will have to say about the health of the economic recovery,” said Ryan Detrick, chief market strategist at LPL Financial.

Netflix could set the tone for technology earnings this season. Three months ago, the streaming giant forecasted paid net subscriber adds of 3.5 million, while analysts expect about 3.84 million, according to StreetAccount. Analysts are also forecasting fourth-quarter subscriber guidance of 8.5 million, which would be the highest outlook since the first quarter of 2019.

Netflix’s stock has traded lower on six of its last seven earnings releases.

Earnings from United Airlines should give investors a gauge on the travel recovery from the pandemic and Procter & Gamble earnings could show how strong the consumer is in the goods sector.

Stocks are coming off of a winning week but have been volatile since September. Morgan Stanley’s chief U.S. equity strategist Mike Wilson — who has been calling for a correction in the broader market — told clients on Monday that although fundamentals are deteriorating, the market seems to be resilient to a bigger pullback.

“Whether we end up getting this finishing move at the index level this year or not will depend largely on retail participation, the message that 3Q earnings brings from a guidance standpoint, and the path of PMIs into year end,” said Wilson.

Economic data from China weighed on investor sentiment after it reported low GDP and industrial production for September that fell short of expectations. Industrial production in the U.S. also fell for September as supply constraints continued to hinder manufacturing, the Federal Reserve reported Monday.

— with reporting from CNBC’s Robert Hum.