Five things you need to know before the market opens on Monday, November 7:
1. -- Stock Futures Edge Higher With Fed Path, Mid-Terms In Focus
U.S. equity futures edged higher Monday, while the dollar slipped lower against its global peers and Treasury bond yield eased, as investors peered into another key week for domestic markets amid questions over the Federal Reserve's appetite for prolonged rate hikes.
Modestly easing wage pressures in last week's October jobs report, alongside the seemingly dovish Fed statement that followed its fourth 75 basis point rate hike last week, has given rise to at least some suggestion that the Fed will begin slowing the pace of its planned rate hikes starting next month.
Fed Chair Powell did his best to tame those expectations last week, however, insisting it was 'premature' to talk about a change in tact, but with traders noting the stark difference in his comments from the agreed statement, markets are likely to focus on the seven Fed officials slated to make public speeches this week for clarification on the central bank's messaging.
The need for clarity is even more important now that the third quarter earnings season in drawing to a close, and investors are growing increasingly concerned over the market's ability to sustain its short-lived October rally into the final months of the year.
Bank of America's closely tracked 'Flow Show' report suggests fund mangers are moving into cash at the fastest rate since the pandemic, with $62.1 billion of inflow last week, while data from Refinitv suggest fourth quarter earnings will likely decline by 0.4% from last year to a share-weighted $459.6 billion.
With just over 85% of the S&P 500 reporting for the October quarter, earnings are likely to grow 4.3% from last year to $464.1 billion, but stripping away the energy sector cuts that rate to -3.4%.
In the meantime, China's decision to double-down on its 'zero Covid' health policies continues to take its toll on both the region's broader economy and supply chains brining products into the United States. China, in fact, posted the first simultaneous decline in both exports and imports in more than two years last month, while Apple AAPL warned that restrictions at a key factory in Zhengzhou would affect high-end iPhone shipments over the holiday quarter.
Heading into the start of the trading day on Wall Street, futures contracts tied to the S&P 500 are priced for an 8 point opening bell gain while those linked to the Dow Jones Industrial Average are priced for an 88 point bump. The tech-focused Nasdaq is priced for a modest 11 point advance.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.35% lower at 110.515 while benchmark 10-year note yields eased to 4.171%.
In overseas markets, China stocks booked modest gains on hopes that weakening trade data will elicit a policy response from Beijing, with the region-wide MSCI ex-Japan index rising 1.78% heading into the close of tradeing.
In Europe, the Stoxx 600 gained 0.89% while Britain's FTSE 100 was marked 0.04% lower in the opening hours of trading in London.
2. -- Week Ahead: Earnings, Election and Inflation Data On Tap
Mid-term elections and inflation data will form the focus for market direction this week as investors continue to pick through clues as to when, or indeed how, the Federal Reserve will conclude its relentless series of rate hikes.
Polls suggest the increasing chance of a Republican sweep in both the House and the Senate on Tuesday, with key races in Georgia potentially allowing the GOP to hold control of the upper chamber for a fourth consecutive Congress. That composition would likely thwart any fiscal agenda put forward by President Joe Biden over this final two years in office, and possibly remove a key market risk that deeper fiscal spending from the Democrats would further accelerate inflation pressures.
On that front, key CPI data for October, set to be released at 8:30 am Thursday, is likely to show at least a modest easing in headline inflation on an annual basis, although higher gas prices will lift the month-on-month reading to 0.7%. Big declines in used car prices will clip the core component to around 0.5%, according to forecasts.
A relatively muted week on the earnings front will see 31 S&P 500 companies reporting September quarter updates, highlighted by Disney (DIS) and Occidental Petroleum (OXY) on Tuesday and Wynn Resorts (WYNN) on Wednesday. Video game makers Activision (ATVI) and Take-Two Interactive (TTWO) report on Monday and Friday respectively.
3. -- Apple Slides On iPhone Shipment Warning
Apple (AAPL) shares moved lower in pre-market trading after the iPhone maker warned that Covid restrictions at a key plant in China would curtail shipments of its higher-end handsets heading into the holiday season.
Apple said the 200,000 person factory in Zhengzhou, which is run by iPhone assembler Foxconn, is "currently operating at significantly reduced capacity" owing to Covid restrictions put in place last week by officials in Beijing.
Foxconn said at the time it would keep the plant operating as part of a 'closed loop' strategy -- where workers remain on premises until the lockdown order expires -- but may struggle to maintain production levels as workers left the compound earlier this week in advance of the lockdown orders.
"We continue to see strong demand for iPhone 14 Pro and iPhone 14 Pro Max models. However, we now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated and customers will experience longer wait times to receive their new products," the company said in a statement late Sunday.
Apple shares were marked 1.05% lower in pre-market trading to indicate an opening bell price of $136.93 each.
4. -- Activision Lower Amid Microsoft Takeover Doubts
Activision Blizzard (ATVI) shares edged lower in pre-market trading ahead of the video game maker's third quarter earnings after the closing bell and reports that suggest its $69 billion takeover by Microsoft (MSFT) could be at risk.
The New York Post reported Sunday that some investors are worried the Microsoft's efforts to win regulatory approval for the deal, which was first unveiled earlier this year, have fallen short of Activision's expectations.
At issue is the future of Call of Duty, the group's most-valuable gaming franchise, which is currently available on Sony's PlayStation console. For Microsoft's deal to work, the Post reported, it would likely need to keep the game exclusively on its XBox platform, but that would limit customer choice, and likely raise prices, pushing regulators in the U.K, the European Union and the United States -- all of which are looking into the deal -- to either reject it or seek promises that the games will be freely available.
In the meantime, Activision -- which also makes World of Warcraft, Candy Crush and Diablo -- is likely to report a 10% year-on-year decline in quarterly revenues for the three months ending in September, with a bottom line of 50 cents per share.
Activision shares were marked 0.8% lower in pre-market trading to indicate an opening bell price of $71.39 each, a level that would peg them some 24% south of Microsoft's proposed takeover price of $95 per share.
5. -- Buffett Deals Drive Berkshire Hathaway to Solid Q3 Profit Gains
Berkshire Hathaway (BRK.B) shares moved higher in pre-market trading Monday after the investment vehicle controlled by billionaire investor Warren Buffett posted solid profit gains for its underlying businesses but took a net loss of $2.69 billion linked to falling stock prices, insurance losses and surging inflation.
Berkshire Hathaway, which has been run by the 92-year old Buffett since 1965, posted a 20% increase in operating profits -- the metric he most favors -- for the three months ending in September, thanks in part to gains its in railway, utility and energy businesses.
Costs linked to Hurricane Ian, however, as well as broader weakness in the car insurance market hammered Buffett's Geico division, which booked a pre-tax loss of $759 million, with his other insurance underwriters losing $962 million.
Buffett and his team purchased a net $3.7 billion in stocks over the third quarter, including his increased stake in Occidental Petroleum, and bought back around $1.05 billion in Berkshire shares.
“While customer demand for products and services was relatively good in 2022, demand began to weaken in the third quarter at certain of our businesses,” Berkshire said in its quarterly SEC filing. “We continue to experience the negative effects of higher materials, freight, labor and other input costs.”
Berkshire Hathaway's class B shares were marked 1.54% higher in pre-market trading to indicate an opening bell price of $291.90 each.
