Dow set for pullback from records, tech stocks seen buoyant as investors await earnings, Powell, and fresh inflation data

U.S. stock-index contracts on Monday traded mixed, with the Dow Jones Industrial Average and S&P 500 seen heading lower while tech stocks look to extend gains to start earnings season. Investors were also awaiting semiannual testimony from Federal Reserve Chairman Jerome Powell beginning Wednesday and a batch of economic reports throughout the week that could prove significant.

See: A crazy week for U.S. stocks came with a change in the market narrative—should investors believe it?

How are stock benchmarks trading?

On Friday, the Dow DJIA, +1.30% and S&P 500 SPX, +1.13% finished the session at record highs, booking weekly gains of about 0.2% and 0.4%, respectively. The Nasdaq Composite COMP, +0.98% finished the week at an all-time high with a 0.4% weekly gain. 

What’s driving the market?

After a record finish for all three equity benchmarks Friday, markets were on uncertain footing Monday as a number of key events were on deck that could prove a catalysts later in the week. The unofficial start of earnings season, which will kick off tomorrow by the likes of JPMorgan Chase & Co. JPM, +3.20%, Powell’s testimony on Capitol Hill and fresh readings on inflation will likely be the big stories of this trading stretch.

Equity markets experienced a bout of turbulence last week before ending with a flourish, prompted partly by a drop in Treasury yields, which were raising implicit questions about the outlook for the U.S. economy in the recovery from the pandemic, amid a surge in the spread of the Delta variant of COVID-19, and lofty valuations being assigned to some segments of the market.

Questions about the Fed’s monetary policy in the face of growing evidence of percolating inflation also have been blamed for some of the rocky trading.

Yields for the 10-year TMUBMUSD10Y, 1.347% and 30-year Treasury yields TMUBMUSD30Y, 1.969% touched lows not seen since February and were still hanging around those levels on Monday morning.

Although concerns about COVID variants continue to buffet upbeat sentiment, some strategists said that if the continued spread of variants delays the rollback of market-stimulative measures by the Fed, then it could ultimately be perceived as a positive factor for bullish investors.

Fawad Razaqzada, market analyst with ThinkMarkets, said that COVID infection “is more of a concern for emerging markets since vaccinations in those regions are still moving slowly.”

The U.S. leads the world with a total of 33.85 million cases and in deaths with 607,156. Dr. Anthony Fauci, said Sunday it was “horrifying” to see conservatives cheer for low vaccination rates, blaming “ideological rigidity” for hobbling the fight against COVID-19. Fauci, President Joe Biden’s top pandemic adviser, spoke Sunday on CNN.

“Still, with the markets relaying so much on central bank support, any thing that causes a delay in tapering QE purchases should be positive for stocks. So, I doubt Monday’s weakness will last very long,” the analyst added, referencing the $120 billion a month asset-purchase program known as QE, or quantitative easing.

No key data were on deck Monday ahead of a busy week in economic reports, starting with a reading of consumer prices on Tuesday.

Meanwhile, New York Federal Reserve President John Williams is set to speak at 9 a.m. Eastern Time, and Minnesota Fed President Neel Kashkari is scheduled to speak at 12 p.m.

Which companies are in focus?
  • Shares of Virgin Galactic Holdings Inc. SPCE surged in premarket trading Monday, a day after Founder Richard Branson and five crewmates successfully flew suborbital space on the company’s VSS Unity rocket-powered spaceplane.
  • Couchbase IncBASE, a provider of a database for enterprise applications, set terms for its initial public offering on Monday, with plans to offer 7 million shares, priced at $20 to $23 each. The company has applied to list on Nasdaq, under the ticker ‘BASE.’