Stock futures drop as earnings season looms

April 7, 2014

London (Apr 7)    Extending sharp losses from last week, U.S. stocks were poised for a weak open on Wall Street on Monday, as investors geared up for the first-quarter earnings season, which some analysts fear may disappoint. Tech shares dropped, continuing their ride into bear territory.

Futures for the Dow Jones Industrial Average  dropped 51 points, or 0.3%, to 16,305, while those for the S&P 500 index   lost 7.20 points, or 0.4%, to 1,852.90. Futures for the Nasdaq 100 index  gave up 25.50 points, or 0.7%, to 3,512.

The losses came after a downbeat session on Friday, when the Nasdaq index in particular was hit hard. The benchmark slid 2.6%, its worst day in two months, as biotechnology and Internet stocks slumped, and outweighed initial optimism over a government report showing a steady pace of U.S. jobs growth.

Tech majors continued to weigh on the markets on Monday, with shares of Tesla Motors Inc. /quotes/zigman/118681/delayed/quotes/nls/tsla TSLA -2.11%  dropping 2% and Facebook Inc. off 1.2% ahead of the open. Netflix Inc. was flat in premarket action.

Compared with last week, this week is short on top-tier economic data, so investors are likely to focus instead on the first set of earnings reports from the first quarter. Aluminium producer Alcoa Inc.  unofficially kicks off the earnings season on Tuesday, when it reports results after the closing bell.

“The next few weeks are shaping up to be fairly gloomy, with earnings season reminding investors that not only is the Fed taking a step back from its ultra-supportive stance, but corporate America is not yet ready to fill the void,” said Craig Erlam, market analyst at Alpari U.K., in a note and

Erlam explained that in past earnings seasons, companies have been able to boost their bottom lines by significantly cutting costs, rather than growing revenues, which is necessary for sustainable growth in the long run.

“Investors have allowed companies to get away with that to this point simply because the Fed’s quantitative-easing program made it worthwhile. But with them now injecting less and less into the markets, investors may not be so willing to accept what is essentially fake growth,” he added.

And with a number of profit warnings already weighing on investors’ minds, equity markets are likely to be volatile until more economic data set the tone. The economic calendar isn’t offering much to go on this week, with Monday particularly quiet. Only consumer-credit data out at 3 p.m. Eastern Time are likely to get attention.

Later in the week, minutes from the Federal Open Market Committee’s latest meeting are published on Wednesday, while consumer-sentiment numbers for April are out on Friday.

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