Five things you need to know before the market opens on Tuesday February 21:
1. -- Stock Futures Extend Slump As Fed Rate Bets Accelerate
U.S. equity futures moved lower again Tuesday, extending declines from last week's sell-off, as investors continue to re-price interest rate risk amid stubbornly high inflation levels and renewed caution on stock prices from major Wall Street banks.
A chorus of hawkish Fed policymakers last week, alongside better-than-expected readings for retail sales and weekly jobless claims, sparked a big move higher in both Treasury bond yields and rate expectations, with traders now pricing in at least a 20% chance of a 50 basis point rate hike at the central bank's next meeting in March.
The CME Group's FedWatch is also pricing in at least a 54.2% chance that the Fed Funds rate will rise to between 5.25% and 5.5% by early June, compared to just 3.2% a month ago.
The moves have taken benchmark 10-year notes to around 3.871%, the highest since early November, while pegging 2-year notes at 4.667%, marking a 25 basis point surge since the beginning of the year.
That's added extra weight to stocks, with the S&P 500 down 2.4% from its early February peak -- and barely in positive territory for the month -- as investors judge the impact of both higher Fed rates and a muted fourth quarter earnings season.
Collective S&P 500 profits, in fact, are set to decline by around 2.8% from last year's levels to a share-weighted $443.2 billion, according to Refinitiv data, with first quarter earnings likely to decline another 3.9%.
Morgan Stanley analyst Michael Wilson warned in a weekend client note that while the U.S. economy is likely to avoid recession, the chances of a so-called Fed pivot have evaporated, raising the risk of a sharp equity market pullback.
That view was echoed by JPMorgan's Mislav Matejka, who cautioned that stocks may have already reached their peak levels for the year.
Market volatility gauges are reacting in kind, as well, with the CBOE's VIX index surging another 10.5% in the overnight session to 22.29 points, a level that suggests traders are expecting daily moves of around 57 points -- or 1.4% -- for the S&P 500 over the next thirty days.
Heading into the start of the trading day on Wall Street, futures contracts tied to the S&P 500 indicating a 32 point opening bell slump and those linked to the Dow Jones Industrial Average priced for a 211 point decline. The tech-heavy Nasdaq is indicating a 120 point pullback.
In overseas markets, Europe's Stoxx 600 was marked 0.23% lower in early Frankfurt trading while Britain's FTSE 100 fell 0.2% in London. Overnight in Asia, the region-wide MSCI ex-Japan index fell 0.86% into the close of trading while the Nikkei 225 ended 0.21% lower in Tokyo.
2. -- Week Ahead: Fed Minutes, Inflation Data In Focus
With earnings season winding down, and the Fed not set for another policy meeting until late March, minutes of the central bank's February rate decision will likely provide the week's most important data as investors look for confirmation of its recent hawkish tenor.
Wednesday's Fed minutes, expected at 2:00 pm Eastern time, will be followed on Friday by the January reading of the central bank's preferred inflation target, the PCE Price index, which is expected to echo the level of elevated price pressures detailed in last week's CPI report.
Collectively, the two releases will provide significant color as to both the Fed's near-term rate signaling at the recent market expectation that the terminal Fed Funds rate will rise to between 5% and 5.25% by mid-June.
In terms of earnings, around 62 S&P 500 companies are set to report this week, including Walmart (WMT), Home Depot (HD), Nvidia (NVDA) and Moderna (MRNA).
Weekly jobless claims data is expected as usual at 8:30 am Eastern time Thursday alongside a final reading of fourth quarter GDP.
3. -- Walmart Earnings On Deck As Investors Eye Retail Sector
Walmart (WMT) shares edged lower in pre-market trading ahead of the retail giant's fourth quarter earnings prior to the opening bell.
Analysts expect Walmart to post an adjusted bottom line of $1.51 per share, down around 2 cents from last year's tally, with revenues rising 4.5% to $159.72 billion.
Key for investors, however, will be both its near-term forecast for April quarter sales, given Walmart's breadth across the consumer spending sector, and its ability to push back on planned price increases from major packaged food and consumer brands groups in order to retain customers and stabilize profit margins.
"We believe Walmart is well positioned to gain share in 2023, primarily driven by its scale advantages in grocery as well as its status as a low-price leader," said KeyBanc Capital Markets analyst Bradley Thomas. "We believe grocery inflation will continue to support comps but expect a moderation in the quarters ahead."
Walmart shares were marked 0.18% higher in pre-market trading to indicate an opening bell price of $146.17 each.
4. -- Meta Shares Jump On Plans For Verified Subscription Charge
Meta Platforms (META) shares moved higher in pre-market trading after the Facebook parent said it would begin testing a monthly subscription service for its popular social media apps.
Meta Verified, the company said, would charge users between $11.99 and $14.99 per month for bundled access to Facebook and Instagram, with paying users receiving 'blue check' verification that the company described as "“proactive account protection, access to account support, and increased visibility and reach.”
"This new feature is about increasing authenticity and security across our services," CEO Mark Zuckerberg said in a weekend blogpost."This week we're starting to roll out Meta Verified - - a subscription service that lets you verify your account with a government ID, get a blue badge, get extra impersonation protection against accounts claiming to be you, and get direct access to customer support."
Meta Platforms shares were marked 2.26% higher in pre-market trading to indicate an opening bell price of $176.79 each.
5. -- Microsoft Pleads Activision Takeover Case to European Officials
Microsoft (MSFT) shares edged lower in pre-market trading as senior executives appear before competition authorities in Europe in an effort to rescue its panned $69 billion takeover of video game maker Activision (ATVI).
The deal, which was unveiled by Microsoft in January of 2022, is already facing challenges by the U.S. Federal Trade Commission and Britain's Competition and Markets Authority, both of which have raised concerns that it will limit customer choice and ultimately lead to video game price increases.
Microsoft, for its part, signed a 10-year agreement with Japan-based rival Nintendo that will allow Activision's "Call of Duty" franchise to remain available on its consoles, in an effort to convince EU regulators that the deal will benefit the broader industry.
"We’re more than willing, given our strategy, to address the concerns that others have, whether it’s by contracts, like we did with Nintendo this morning, or whether it’s by regulatory undertakings, as we’ve consistently been open to addressing," said Microsoft president Brad Smith.
Microsoft shares were marked 0.76% lower in pre-market trading to indicate an opening bell price of $256.10 each, while Activision slipped 0.32% to $77.32 each.
